Think Big, Buy Small
Think Big, Buy Small
- 03 Feb 2025
- Think Big Buy Small
Finding One's Way To ETA
Royce Yudkoff:
Welcome to Think Big, Buy Small, a podcast from Harvard Business School about entrepreneurship through acquisition. We’re your hosts, Royce Yudkoff…
Rick Ruback:
…and Rick Ruback. Welcome to Season Two of Think Big, Buy Small. Much like last season, we're planning a mix of episodes. Many, like today's, feature journeys, and we'll get to know searchers and the businesses they bought, challenges they faced, and how they overcame them. We'll also be doing a few episodes helping you sharpen your skills on search. Different this year, we're going to talk to a few investors and you'll get a sense of how investors think about investing in search, and that's so helpful when you're looking for capital. So that's our plan for the season. Lots of journeys, little bit of how-to, and some interesting stuff mixed in. So, let's get started.
Royce Yudkoff:
Today, Rick and I are delighted to have as our guest Nick Vandam. Nick is a self-funded searcher who acquired a business. Along the way his journey took him to working in some large corporations, trying his hand at a startup before finding his way to entrepreneurship through acquisition. Rick and I, we're looking forward to hearing your journey, Nick. And maybe that's a great place to start. Could you tell us the journey, starting with where you grew up, what your parents did, where you went to school, your early career as you found your way eventually towards ETA?
Nick Vandam:
Pleasure to be on. I grew up mostly in Minneapolis, Minnesota. My dad retired from the Navy when I was young and started flying for Northwest Airlines. And most of my childhood, my dad was an airline pilot and my mom was a lactation consultant. At a young age, I mean, I always wanted to run my own show and do my own thing. And so, I've always tried to make some money on the side, selling Pokemon cards in sixth grade, to mowing lawns in high school, to selling used textbooks at West Point – always trying to find an angle. With that itch, tried my hand in some startups. Didn't really go anywhere but really led me to ETA. With all that said, you never know anything about ETA when you're going through the process of, “Oh, a startup. Oh, Facebook, Instagram, Snapchat, the SpaceX, Tesla.” You hear about all that but no one talks about the business someone bought and worked hard at. So, that's really where ETA changed my life. So, it's a fun journey and I'm here to tell you all about it.
Royce Yudkoff:
Well, tell us a little bit about where you got educated and what your first jobs were out of college.
Nick Vandam:
So, I grew up swimming, mostly in high school, so that was a big part of my life. And then going to school, I ended up going to West Point, United States Military Academy, and swam there, did triathlon there. And, you know, when you're at West Point, it's predefined what you're going to do after. So, I studied environmental science and engineering and, quite frankly, because the geography department was near my room, so that made it an easy choice because I didn't have to go outside to go to class.
Rick Ruback:
Hahaha! I love a pragmatist!
Nick Vandam:
That seemed pretty efficient. You know, when you're eighteen, nineteen, you don't know what you want to learn. You're just like, "Well, that seems interesting.” And I enjoyed it, you know. I learned about climate change, I learned about the environment, I learned a bit about environmental engineering. All good. You know, getting out of West Point, I made it onto the U.S. National team for triathlon. So, I was eligible to apply for the World-Class Athlete Program, W-CAP, for the Army, and I made it into that, so that got me out to Colorado Springs at the Olympic Training Center. I did that for my first couple years actually out of West Point. My military career was not traditional. In 2011, I had heat stroke racing in Japan, and that ended that pursuit of the 2012 Games. So, I was incapacitated for a while and really that destroyed that season, my standing in the world rankings. So, W-CAP told me, "Go find a real job in the Army." I was like, "I don't know what that is. I’m a first lieutenant. I've never done anything like that." So, I ended up staying at Fort Carson in Colorado Springs and found a traditional staff job. Worked really hard, got recovered, had a great 2012 season and the Games happened. I had been racing, I had done well, reapplied, and they said, "No, we don't think you're going to make the 2016 Games." And I was like, "I'm going to Afghanistan. You're not going to take me back into W-CAP, I'm going to jump on this deployment." And it was probably the best thing I did for myself in bursting the bubble of sport. To be really good at sport, you have to be all encompassing, all focused, and live, eat, breathe, sleep it, and live in that world. And I'd done that, I had gotten pretty good, but there's more going on in the world, as I learned in Afghanistan, and I learned of myself that I could do more than just be a triathlete focused on, you know, my bike, and my swimming, and myself. So, you know, when you're going to West Point and you're in the Army, you do your service, right? And I had had friends do two to three deployments by the time I did one. So, I really wanted to do my part. But I came back from Afghanistan, I just didn't really see myself doing a career in the military. That entrepreneurial itch was not being taken care of in the military, for all the reasons you guys can imagine.
Rick Ruback:
So, it's interesting. I think there's a similarity between the pursuit of high-end athletics and entrepreneurship, that there's a sense of being all-in, of focus. What do you think?
Nick Vandam:
Yes, absolutely. That is why I pursued ETA, because I found I do best when I'm all in. I want to be all in, I want to live, eat, breathe my company and pursue it like I did sport. I didn't find any fulfillment in really just being told what to do in the military, to even financial services, where I ended up after, to corporate America – it wasn't me. And Rick, to your point, there's a very tangible outcome, just like sport. I have a faster time, I have a better power output, I have better workouts and better training, and it all compounds, and I can control it. I have an impact on how well I can train and therefore how well I can race. And that’s why I find fulfillment. I never had that outside of sport, really.
Rick Ruback:
So, one of the things I get the sense of is there's a lot of entrepreneurial activity in sport, in the sense that you're figuring out what works for you, what the strategy is, what your nutrition has to be like, what your sleep has to be like, what your training cycles and sequences will be.
Nick Vandam:
Yeah, where you're weak too. Everyone has weakness of their performance and being, you know, cognizant that you do have weaknesses you need to work on and being humble enough to see that as well is important. You're not going to go anywhere if you just think you're perfect at everything.
Rick Ruback:
Right, but there's also strategic choice in triathlons, whether you attack your weaknesses or enhance your strengths. You said you grew up swimming, and for you swim was probably less of a challenge, but maybe the bike or the run was a challenge. So, it's like, “Well, what do I want to do?”
Nick Vandam:
Yeah. You have to lean into your strengths, and you need to leverage that and race your race based off where you feel you can succeed.
Rick Ruback:
Well, I should tell you, I'm fascinated by sports and intrigued by people who can do them well. My partner Royce here has been known to fall asleep at the lunch table when somebody starts talking about sports. So, we better get back to your entrepreneurial journey…
Royce Yudkoff:
I'd just like to bring us back to ETA, because I'm…
Rick Ruback:
See, I knew he would say that.
Royce Yudkoff:
...I’m seeing my actuarial remaining lifespan in front of my eyes here, and it's not long enough to keep going down this path. So, Nick, what I'd like to ask though is, this bridge between sports and ETA is pretty clear. It took you a little while to find your way to ETA though, right? Because you left the Army…
Nick Vandam:
Yeah, I left the Army not knowing anything about anything. How does anyone make money outside the government giving me a check? I didn't know. I mean, you go to West Point, you go in the Army, it's all a bubble. And then you leave the Army, you're like, "What's a job? How does this work?" And you’re just not used to that.
Royce Yudkoff:
Yeah.
Nick Vandam:
So, I ended up doing financial services. I got my stockbroker's licenses, and my investment advisor licenses, and a certified financial planner. I said, "I'm all in. I'm going to go super hard and just take my athlete mentality and apply it to this."
Royce Yudkoff:
Working for a large financial services company, right?
Nick Vandam:
Yep. And I did really well. I probably would still be doing well. I just, it wasn't me selling to everyone with a heartbeat. So, I moved on from there, jumped into a startup. That's another reason I'm doing ETA, because the startup absolutely imploded, and product-market fit is a very real thing. And trusting the founder, that he's doing the right thing, is another real thing. So, I experienced both of those viscerally and I said, "I’m not again. I'm going to trust myself and I'm going to find something that already has product-market fit figured out."
Royce Yudkoff:
So, you’re starting to sniff closer to ETA here.
Nick Vandam:
Yeah, one step closer. I still didn't know what ETA was but that startup imploded and really that was one of the most humbling experiences of my life, is that I had to call thirty investors and tell them they all lost their money and the CEO's going to jail, and fire thirty people.
Rick Ruback:
That must've been a great day.
Nick Vandam:
Oh, yeah. He's still in jail for another ten years. That was tough. That was really tough. So, that was another important piece to my story. So, I got through that and a year of not really moving anywhere because I was like, "I'm trying to figure out my life. How do I get a restart?” So, I took the chance to reset myself. So, I started applying to grad schools and I said, "Maybe this is a good time to take a knee, a tactical pause, as we call it in the Army, and go into a grad school and learn from my experiences in a controlled environment, and take my perspectives and try to find a new path.” During that time, I had started seeing stuff about ETA. I had a buddy from West Point, a former student of yours, and I saw him doing something. I was like, "What is that? Wow, I didn't know you could buy a company. That's really neat." Then put it in the back of my mind, went to Thunderbird, which is ASU's International Business School, and I loved traveling in the triathlon so I thought, “Maybe this will be fun, I can find a career in international business.” And then during my Thunderbird time, I had a teacher give a talk on buying small businesses, and it finally showed me the roadmap. He had spelled it all out. "Oh wow, wow. That's how you do it. This is what I heard previously." So, that was two times that I, you know, flirted with ETA, and after that time I said, "I'm going to go to a conference." I went to the ETA conference at Northwestern Chicago Booth. It was October of '19, so right before COVID hit when everything was normal, and it was a great experience. I found the ETA community just this abundance mentality, this like pay it forward mentality, everyone just wanted to help each other, everyone knew there were a lot of deals out there. I just got ignited right there. I said, "I'm going to go do this."
Rick Ruback:
Did you do it right after ASU or did you take a job between graduate school?
Nick Vandam:
I took a job. Yeah, so I got super interested at Thunderbird. I started following the model, right? I read your guys' book, I read “Buy Then Build”, I listened to all the podcasts, I was calling people that were doing search and doing interviews. And I was still looking for a job, I was trying to keep my options open, and I came to a realization one day, I was like, "I don't have much funds and I'm going to be living in my parents' spare room if I was going to try to do this, so maybe I should do this from a position of strength and not desperation.” So, I re-focused myself to find a job. I said, "I can come back to this in a year. This isn't going anywhere." But my mentality just I don't think would've been in the right spot to go search for a company and just rush into something. So, I ended up moving to LA to work at Raytheon, doing FP&A work on their space programs, and it was a great move. It was January of 2020, right before COVID, I had just settled in LA, and I would've been far more stressed if I had just started search and COVID just hit. The world would've been turned upside down for me. So, I started Raytheon, I knew, “OK, maybe give me six to eight months, I'll figure this job out and then I can have some like flex in my, you know, mental capacity to start a part-time search and kind of see where it goes.” And that's what I did. You know, I started January of 2020 and then in October of 2020, I was okay leaving Raytheon, let's say that. That was a great experience, learned a lot, but I didn't really want to climb that ladder.
Rick Ruback:
And so how long were you searching for?
Nick Vandam:
I started part-time searching, really it was September, I started doing weekends, lunch, before work, after work. I put up a website over a weekend and I just started looking at BizBuySell, and I just started reaching out to brokers in markets that I could see myself living. I was in LA, I was, “OK, I could stay in LA, I could move back to Phoenix." I knew people there. I could move back to Denver. I knew people there. Or Minneapolis because my family is in Minneapolis. So, I said, "I need to find a place that I'm OK living for the rest of my life. I'm not going to go find a business in the middle of Wyoming, where I don't know anyone and I'm not going to be happy and fulfilled in three to five years." I need to have this long-term mentality if I'm going to buy and hold a company.
Rick Ruback:
So, that's really interesting because you had said earlier that you really enjoyed travel, that you didn't have particularly deep roots anywhere. And yet there you are, beginning your search, you say, “I'm looking for a life-long solution and part of my lifelong solution is to be in a geography that I want to live in."
Nick Vandam:
I am all about options. And I had moved around enough and I found it's really hard to build a community in new places, and it can get lonely. I found that through the military, I found that through travel, and I just wanted some place where I was close to an airport where I could travel if I wanted to. I don't want to move some place where I have to build a community again."
Rick Ruback:
And you weren't in a committed relationship or something, which you needed to take account of a partner’s…
Nick Vandam:
No, that's another part of my life. My girlfriend, I met at ASU Thunderbird. I am the Type B and she's the Type A, and she brings order to some of my chaos. I am more open to risk and she tempers my hair-brain ideas at times.
Rick Ruback:
I will say you're the first person who self-identifies as Type B who's both a triathlete and a veteran. That threesome doesn't come around very often.
Nick Vandam:
I am a Type A on very specific things, and that is my business and that is sport. Beyond that, if it's not in those priority lanes, or family, I don't have the bandwidth for that. I'm just going to focus on what's important.
Rick Ruback:
Royce, that's a familiar tone to you, isn't it?
Royce Yudkoff:
I'm a focuser myself, Nick. I have to pry my vision open beyond the couple of things I want to hunt down that day. So, Rick is right.
Rick Ruback:
Yeah, sadly, I am a 16th of an inch deep and a three miles wide kind of person. I am interested in almost everything, so…
Royce Yudkoff:
And yet we work together so well.
Rick Ruback:
Yeah, I don't know how it happens.
Nick Vandam:
I’ve always been looking for people in my life that are people that I want to emulate, and I like to bring those people into my world to make me better.
Royce Yudkoff:
Well, there we are. I love that. Nick, you've left us here picking up some money and experience at Raytheon. You decided it wasn't for you and started to search. How did that search lead you to the company you bought? Tell us how you found it, and then we'll talk about what the company does.
Nick Vandam:
So, started to search, put up a website, said, "Let's just go. And nothing's stopping me from putting up an e-mail address and reaching out to brokers, and looking at BizBuySell." I realized very quickly I didn't know anything about buying a business. I could understand the science of it but there's an art as well. In that, I also sought out a river guide, who's still on my board and still helping me with kind of partial CFO work - Eli Drucker out of LA. And, you know, he has this model of essentially helping self-funded searchers do the deal, invest a little bit in the deal, network with some investors and help in the operations process. I got very interested in the telecom space very quickly because I didn't hear anyone talking about that. I heard plumbing, I heard HVAC, and there's great reasons why those companies make sense, but I like to look a little bit elsewhere for value. And so I got connected quickly with him because he knew the industry, he was in LA. I didn't know anything about deal making. He did. I wouldn't have done my deal if it wasn't for him. I wouldn't have gotten through the deal process, and I attribute much of where I am today from his guidance early on.
Royce Yudkoff:
Because while you had a lot of skills, they didn't include things like finance, modeling, due diligence on buying a company…
Nick Vandam:
…how to structure an LOI, what to include, what to not, how to negotiate with the broker, the seller. The art of it, to deal with the personalities as well, and the challenges that come up and the due diligence, is not easy.
Royce Yudkoff:
And so I take it, Nick, you executed a brokered search?
Nick Vandam:
Yes. Early on, I didn't feel I had the bandwidth for proprietary search if I was going to try to work as long as I could. I felt that there's a lot of companies ready to sell and that's what a broker offers. And if you're paying a little bit of a premium for that, that's going to be worth it because the probability of close is so much higher. So, I looked at it as risk reduction and paying a little bit more with an increased probability of success. I think you got to pay a little bit more to get in the game. Now, a searcher is a niche target – seller that wants the legacy of the business to live on, doesn't want to sell to a big corporation, doesn't want to work more. And the searcher usually isn't the absolute best price but is more cash-based, there's not a stock transfer that the PE strategic roll-up might want to do. So, we're in a niche in the search community that you've really got to find that right seller that's going to appreciate what a searcher can bring to the table.
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Royce Yudkoff:
One of the aspects of Nick's story that I know you and I both love is how Nick went out to acquire his own smaller firm, even though he didn't come from a background of mergers and acquisitions or finance or financial modeling. And Rick, you and I hear this all the time from people looking at search who have very valuable career skills, but not that, and somehow they find that daunting, even though most of the skills that will be called on when they run the business are not finance skills. Nick braved ahead and he got this done. What lessons do you think that offers to people contemplating search?
Rick Ruback:
Well, I think his whole story is about the accessibility of this career path to people. He didn't come and take our classes. He wasn't bathing in ETA at one of the major business schools that has an ETA course. He wasn't doing that. He picked it up. He heard a couple talks about it, he read some books – one great one – on how to do this, he listened to some podcasts, and then he just decided to do it. And he was able to make it work. What is, I think, interesting is, for our listeners, you don't have to be an expert. You can just do it. You know, you begin your journey by taking one step at a time. And those steps are not all that complicated. You figure it out. So, if any of our listeners are wondering, “Can we do this? Is this accessible?” The answer, I think, is really “Yes”.
Royce Yudkoff:
Agreed. Let’s return to our conversation
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Royce Yudkoff:
So, Nick, this is a good point to tell us about the company you bought. Could you describe what they do and a little bit about their history?
Nick Vandam:
Yeah, so, telecom, I got focused on the telecom space. So, I ended up buying Midwest CATD, we go by MCI. We do maintenance and construction for wireline and wireless infrastructure. So, what that is, is primarily we do aerial cable construction, so that's everything below the power, which is copper lines, co-ax lines, fiber lines, and then we do a bit of the underground fiber placement. And then we also have a separate division that does wireless construction, so that is macro-site towers. We're going out to the hinterlands of North Dakota, South Dakota, you know, Minnesota and upgrading cell networks, and doing some maintenance along the ways.
Rick Ruback:
So, is it a distributed workforce? Do you put people in equipment on the road?
Nick Vandam:
Oh, very much.
Rick Ruback:
Do they go away for a week, or do they go away for a couple days? Or how does that work?
Nick Vandam:
So, yeah, when I bought the business, I'll be honest, I didn't come from telecom. I will tell you straight up, I got half the business due diligence spot on and half of it completely wrong, because I have two separate businesses inside of MCI. My aerial and cable construction, I got that due diligence spot on. It's a niche area of work and we have a strategic position in the market because we are the most capable in the market until you can get to Kansas City or Chicago to do aerial construction. It's not as big of dollars as the underground construction, so it tends to be overlooked and the underground guys just don't want to deal with it. They're like, "Just go do it and I don't want to hear about it. I trust you guys." We've been doing it for twenty years in the market, so it was spot on. The wireless side, I overhauled the whole division within the first two weeks because we weren't doing things right, we weren't doing it safe. I didn't know enough about the industry to identify all that and ask the right questions in due diligence. The seller, let's just say he wasn't going to tell me something that I wasn't asking about.
Rick Ruback:
Yeah, that old question of, "Is there something I should have asked you about that I didn't?" That usually doesn't create a favorable response.
Nick Vandam:
No, it doesn't. His self-interest is to maximize his dollars and that is opposite to mine. And we're all trying to play nice in the deal, and then everything goes to the wind once the money's been transferred.
Rick Ruback:
It's also that your perception of a problem may be different than his perception of a problem.
Nick Vandam:
True.
Rick Ruback:
My sense of veterans who take over companies is that they have a sense of the right way to do things, and the right way to do things may not be the commercial way to do things. That is, it may not be the most cost-efficient way to do things, but there's a sense that things should be orderly and predictable and structured because when crazy things happen, when the chaos comes out of its box, if you don't have some order to begin with, you can't really control the system. And having worked with dozens of veterans closely, I think that difference between the commercial perception and the orderly perception is so huge that the seller might not have thought it was such a big problem.
Nick Vandam:
You're right. And hey, he knows how to fly the airplane. He knows what controls matter, what dials matter, what altitude he should be at, what weather to avoid. I don't know how to fly the airplane, so every little bump is stressful to me.
Rick Ruback:
Right.
Nick Vandam:
And that's the world of search, that's the world of ETA. You got to try to reduce that gap as fast as possible, but unless you're coming from industry, there's no way you're going to know exactly the right questions to ask. We had twenty-three employees when I took over in May of 2021. Six of those was in our wireless division and everyone else was in cable. And our cable guys will climb telephone poles, that's about the heights they go. The wireless guys, they're kind of half engineer, half cowboy. You’ve kind of got to be to go out to North Dakota in February and climb 300 feet in the air, and stay up there for, you know, six to ten hours. That is a different type of person.
Rick Ruback:
So very different skill sets, very different personalities.
Nick Vandam:
In my due diligence, I saw the company as one. I didn't see it as very separate operations. And I quickly learned that they are very separate – very different margins, very different customers, different people, not much overlap, other than the space we occupy in the building. But the equipment's different, the trucks are different. It's very much two separate business lines under one roof.
Rick Ruback:
So, in the years since you've owned the business, so you've owned it, what, three plus years or so?
Nick Vandam:
Three and a half.
Rick Ruback:
Three and a half. You've increased it quite a bit, the size of the business.
Nick Vandam:
Yeah, so we started with twenty-three employees and we're now at fifty-two.
Rick Ruback:
Okay, so more than double. And the top line also more than doubles?
Nick Vandam:
I hope we'll have three times that by the end of this year.
Rick Ruback:
So, that says to me you're getting some operating leverage, you're getting more efficiencies.
Nick Vandam:
Yeah. Back to “you don't know what you don't know” in due diligence. I had to have a good grasp on the gross margins on the wireless side. I kind of had a good grasp on the wireline, but it was all blended, and I never pushed the seller on separating those numbers, and I got onto something else to focus on, because you're trying to think about two hundred things at once. The other thing that I'll kind of retrack to due diligence on my mistakes, because I want your audience to know where I screwed up. What I screwed up is I didn't focus enough on the people and their positions. I knew the foreman were really important but foremen are the revenue driver of my company. If I don't have more foremen, I don't have more crews and therefore I don't have more revenue. There were foremen that had left or were leaving, and the names on that roster of people was switching about through due diligence. And I didn't really have a good grasp on the criticality of some of those positions – back to the seller not really giving me this on a silver platter, and I not drilling into who is in the company and what positions they fill, and keeping track of that. Another factor, I didn't really focus on the safety record as well as I should have. I didn't know what I didn't know.
Rick Ruback:
So, Nick, I wouldn't beat myself up too much on these due diligence challenges. We've seen so many transactions and I can't remember a transaction in which the acquirer had a chance to meet the employees prior to closing. It's extraordinarily rare. So that is not something you can beat yourself up on. And the turnover is also really hard to tell from the outside because unless you have a granular understanding of the business, you don't really know what the skills of the team leaders have to be. You can't really answer this with data. It is one of these things that when you get in and you start running the business, and you manage the challenges that are in front of you and try to grow the business, that you say, "Wow, this human capital need of finding the right team leaders is a real challenge."
Nick Vandam:
Rick, that almost sunk us the first year. I mean, I took over in May of '21 and it was like we just fell off a cliff in revenue, and I was like, "What did I touch? I didn't do anything, I just walked in here. I swear I didn't push people away." It was tough.
Rick Ruback:
And you lost revenue because you lost people.
Nick Vandam:
Yeah. I took over and we had twenty-three. I think we dipped down below twenty within a month. The seller was not reporting to me people wanting to quit that said it verbally. In our purchase agreement, there was a clause in there about written resignations and written levels of resigning, and he had made sure that no one ever sent him an email in writing. And if someone was going to quit, it was verbal.
Rick Ruback:
Wow.
Royce Yudkoff:
Yeah.
Nick Vandam:
Now I know all the skeletons in the closet, right? So, that proved to be relevant for a year later, when I filed an indemnification claim against the escrow. So, yeah, there was some lack of good faith there, I believe. Some people were wanting to quit and he was doing everything to keep the boat together until I got in and he got his money. So, I took over and the first week my office manager on the wireless side said he's leaving. And, you know, I had another foreman that says he's leaving the next week. It kind of just keeps going. The first week, I finally was able to piece some stuff together that I had not had clarity, in combining that qualitative and quantitative. And starting to meet the people and starting to hear the stories very quickly, as people were coming to my office, and I'm like, "Oh, that's interesting. I would've liked to know that two weeks ago." But I was in the captain's seat at that point. First week, I remember going home one night and I was catatonic for like hours, staring into a wall, scared to death on what I had just done, because there was so much flux, I was overwhelmed. That was a very difficult period, and I attribute that to someone was just trying to barrel roll through the deal and getting the deal done. And the first year, we dropped a million in revenue, we dropped 25% and I barely made, you know, debt service. That was a stressful period.
Rick Ruback:
And you had an SBA loan?
Nick Vandam:
Mm-hmm.
Rick Ruback:
So, making debt service was really just making debt service. Had you borrowed from a commercial bank and had standard covenants, you probably would have gone through those in the first reporting cycle.
Nick Vandam:
For sure. I got in, I was like, "Why did we just fall off a cliff here?" I had to rebuild the wireless division from scratch because the quality and the safety just was not there. The people, the churn was super high. And I started recruiting people one by one, and just taking hold of the ship, and said, "I'm going to recruit every single person in this division, and I'm going to do it personally, and I'm going to, you know, sell them on the vision on what we're trying to build here."
Rick Ruback:
And I take it most of the growth has been in the wireless division, right?
Nick Vandam:
Yeah, we're at about twenty-five people in that division now, and one person is the same from when I took over.
Rick Ruback:
Wow. It's interesting. It's kind of an existing business, the wired business, plus a bit of a startup.
Nick Vandam:
Exactly. And the stress here is that startups don't do well with a bunch of debt on them.
Rick Ruback:
Well said, well said.
Nick Vandam:
We almost shut down the wireless division in the winter of '22. We had some serious conversations about that and I remember talking to one of my board members. The question was, "What is the future? Is the future aerial wireline or is the future wireless?" The future is wireless. Customers prefer wireless, and that really was the start of the commitment to that wireless division, to get it off to a better footing, you could say. And for, you know, two, three years, I mean, it was really funded by our wireline side, in that growth and that redevelopment – the startup, as you described, Rick.
Rick Ruback:
And if you flip ahead five years, do you imagine the wireless business being most of your business?
Nick Vandam:
Yeah. The margins aren't as good, to be honest, but there's not as much a growth opportunity in our wireline side because we're so specialized, it's a niche. Aerial construction just isn't booming as much. You don't want another pole in your yard. I don't want a pole in my yard. People prefer wireless or underground, but it's an existing plant that needs to be serviced and still has a function in any build. So, we’re that little niche that works for everyone in the area. Then we specialize in our niche. It's not a huge growth driver, but it's good margins and we have a great position because who's going to come to the market with six to seven foremen, and ten bucket trucks to try to replace me? The investment's not worth it. The industry I'm in has few customers. The nature of telecommunications, the people spending money are minimal. In wireless we call them the tower gods – they're Verizon, T-Mobile, and AT&T. They spend the majority in the tower wireless industry. And when they're spending money, we're moving. If they're not spending money, it's hard to find work. That's a hard part of the industry, and pricing power behind that. The same with the wireline side, is I do have good customer diversity, but I have master service agreement as a subcontractor for Comcast. They're not changing the rates for me. They have standardized national rates and getting them to change those rates is a hard process. So, I have a lot of very loyal, repeat customers and repeat project-based customers, so that is where my business shines. And the fact that I have the people, the equipment, the trucks, the fixed assets locally is a moat around me. I mean, it’s hard, as I described earlier, who's going to come into the market with six, seven foremen and ten bucket trucks to really move me out? It's a hard proposition. So, there is pros and cons, and there's always hair on the dog, guys. As you all know, it's just what hair you want to deal with and what hair you think is important or not.
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Rick Ruback:
Royce, one of the things I find really intriguing about Nick's business is this combination between this high growth, effectively new startup kind of business, where they're installing, repairing wireless transmitters on cell towers. So, that's half their business. And I think many people will get really excited about that business because it's high tech and state-of-the-art and the way the world's going and all that. But then the other part of his business is this servicing of legacy cable lines, copper lines, that are hanging off telephone poles, that are antiquated technology. Nobody wants to put new ones in, but they need to be fixed because they break and when they break they’ve got to call Nick. And so, you know, you and I have talked about the joys of cigar butt businesses and maybe, Royce, you could tell us why that is called a cigar butt industry.
Royce Yudkoff:
Well, the image, of course, Rick, comes from walking along the sidewalk and you notice on the pavement in front of you a cigar butt with a faint smoke rising from it and so you pause, pick it up, and take the last two or three puffs from it before it's no more. And that's the idea of businesses like this. Can you buy them economically? Can you keep running because it has a far longer life than most people imagine just looking at that cigar butt on the pavement.
Rick Ruback:
Right, I always imagine a kind of rotund guy with a vested suit, smoking his cigar and he drops it on Fifth Avenue or in Wall Street and then somebody comes along – skinny, nimble person – and grabs the cigar butt and starts smoking it and says, “Wow, I'm getting this delicious cigar for free!” And so the idea of a cigar butt business is the same, is you buy it at a very low price, because it's a very dull and declining revenue stream, and you just simply smoke those last puffs but, in the process, make a lot of money. Eventually your customers will move away from this technology, but that's not a surprise.
Royce Yudkoff:
And that could take a very long time. While a telecom company wouldn't invest in brand new wireline services, there's not a lot of reason to take them down since they're collecting the same revenue however they deliver it, and this capital is already on the towers. So, it could last for many years.
Rick Ruback:
I love cigar butt businesses. I understand why people don't want to do them, but I love them economically. And I also think they require a special CEO to manage them. You know, if you're managing a paging business, I would think that in the last thirty years, the price of carrying a pager should be going up like a rocket ship because you're getting rid of all the customers who are, “Well, do I want it or do I don't want it? I don't really need it. I'm a pretty elastic consumer. I can do other things.” They're all doing other things. The only people left with pagers are the people who really need pagers.
Royce Yudkoff:
That's right, for whom it's a perfect solution. And of course, no new competitors come in, and gradually the competitors disappear. I think that’s right and I think to your point about a very special CEO, it's a CEO who understands what that business is and doesn't try to invest in growth or new initiatives in that business but understands the role it plays.
Rick Ruback:
Royce, let’s get back to the conversation.
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Royce Yudkoff:
Nick, take us one step back, because I'd love to hear a little bit about how you acquired the company. And by that I mean how you raised the equity for it. You've told us you got an SBA loan, which is very common, particularly for self-funded searchers. How'd you round up the equity? Because this is a piece of the experience you are also new to doing, I think.
Nick Vandam:
Yes. So, due diligence, I signed the LOI January of '21 and we marked about 90 days. We ended up being a little bit past that to close. What our plan was, was get through a QofE and then put together an awesome deck and go hard to raise capital after we're done with a QofE. I didn't feel confident going to investors unless I had solid founding with the financials. Part of that is what I described earlier in my story, is having experienced fraud in a startup, I was very keen to say, "These numbers are real and I know they're real, and I paid someone $20,000 to tell me they're real." So, I took that, I put together a very robust deck. I paid a graphic designer to sprucen that up, and I would advise any searcher that's doing that to pay a graphic designer $1,000 and make your PowerPoint deck beautiful. I raised about $1.4 million in three and a half weeks.
Royce Yudkoff:
That's fast. How did you find the people who were stroking checks for an investment like this?
Nick Vandam:
Part, Eli helped. I used searchfunder.com for some and I asked referrals of everyone, which I learned in financial services.
Royce Yudkoff:
Great idea.
Nick Vandam:
And then the last piece, my actual largest investor was my landlord, because we didn't have an established tenure lease for the company.
Royce Yudkoff:
Which is an SBA requirement for many, many businesses.
Nick Vandam:
Exactly right. So, we found a new property, the place I'm sitting in today, and the landlord actually invested as well in the deal…
Royce Yudkoff:
I love that. I love that.
Nick Vandam:
…and he ended up being the largest investor. So, I raised money from about thirty-three people to get that $1.4 million. I took checks from everybody.
Royce Yudkoff:
Wow! Thirty-three people.
Nick Vandam:
I would caution that move, mostly because of the SBA due diligence process, and doing KYCs on all those thirty-three people, which is what delayed the deal about two weeks, is getting the bank to bless off of all those investors. KYC is know your customer.
Royce Yudkoff:
Know your customer, yeah. It's heartening to see how accessible investors are for self-funded searchers.
Rick Ruback:
What was the smallest check?
Nick Vandam:
$10,000.
Rick Ruback:
What was the biggest check?
Nick Vandam:
$150,000.
Rick Ruback:
Wow, that sounds like you were herding cats. It really does.
Nick Vandam:
I went to market and I knew I had to raise this amount, and I just went after it. I thought that was a good strategy though because it gives a finite timeline to an investor with a concrete deck. All the forecasts, everything they could ask, right there with, "Hey, this is our timeline up front, and this is when I need your commitment by, this is when I need the funds by, this is our close." That I thought was very important to convey to any investor, to have a structure.
Royce Yudkoff:
I think your instincts were right. I think investors' natural instinct is to sit on an opportunity and see if they can learn more. And it's really only by knowing that the train is leaving the station that you get them to make a decision and put you at the top of their list. And so, Nick, I'm imagining because you self-funded your search, because you found the deal and locked it up yourself, you're now the majority owner of the business you bought.
Nick Vandam:
I am. I could probably have more if I did more on my own. But, you know, there was a sum to Eli, because he invested in me when my equity was worth nothing.
Royce Yudkoff:
Sure.
Nick Vandam:
And Eli was in the trenches with me with a difficult seller, and ups and downs. I mean, I rolled into my parents' place in Minneapolis and the deal was off when I first showed up at their house, moving across the country, trying to close a deal. And so, Eli was there taking the phone calls, working with me, "Nick, you just got to punch through. He's going to come back around, just let's continue on." So, having that deal team was super important because you don't know who you're dealing with, and having the capacity to flex when things get challenging, and to make just the smart move with the very little information, and you have to make a move within a day or two, and make a decision.
Royce Yudkoff:
Well, it worked.
Rick Ruback:
Yeah, that's the definition of a deal well done. It's done.
Nick Vandam:
Thank you, guys. So, I ended up with about 60% of the common equity of a preferred stack, and I contributed basically whatever excess capital I had outside the deal fees. I sit right along with all my investors. I don't have control over the board. I have two out of five seats, because I control the common stock, my preferred shareholders have two, and I have an independent. So, I strive very hard to make this well-balanced and alignment with me and my investor group.
Rick Ruback:
It is an interesting structure. You know, some self-funded searchers choose not to have a board, and I worry about that. We joke that they have the board meetings when they brush their teeth in the morning, and while those can be affirming and fun, you do miss the pattern recognition that experienced investors who become board members, have both incentive and experience that they can bring to be very helpful.
Nick Vandam:
And they push me to be more rigorous on areas that I may have overlooked.
Rick Ruback:
Nick, we always end our sessions by asking our guests whether you have any questions for us.
Nick Vandam:
Yeah. I've listened to your podcasts, I've read your books, I've talked to a lot of your former students, I value the experience you guys bring to the table. I don't see many searchers doing what I'm doing in the telecom space, and I'm curious if you guys see companies like mine in the telecom space or, I'm just kind of curious on perspective, if there's another industry that you guys think is similar to me because I'm always trying to learn best practices, better models from like industries or like businesses.
Rick Ruback:
Yeah. So, Royce, wasn't Heritage Holding, didn't it begin with a very similar kind of…
Royce Yudkoff:
You're right, Rick, it was in the telecom space, in that it dealt with a few very large cable fiber operators. It operated in data centers, not on towers or, you know, wires underground, but certainly the customers and the project nature of the business was the same. Nick, this was run by two of our former students. So, that's one example. It's so interesting, you and I are sort of thinking about what's similar in slightly different ways. I think you're thinking correctly about the customer being similar…
Rick Ruback:
Right, and the business, and the business.
Royce Yudkoff:
…and the business. You know, another comparison would be not so much in telecom but in all of the route businesses that we see searchers go into. You know, they’re fixing equipment in restaurants, or they're fixing HVAC, or plumbing and, you know, they're sending skilled workers around in trucks to remote locations. And so there’s a whole kind of route density, managing a labor force that you can't see every day, comparison there. So, there the clients are very different, but the need for skilled workers and sending them across a big territory is similar.
Rick Ruback:
I get why you say that, although I think that what's special here is, at least in the wireless businesses, is these are big projects where people are away for a week or more at a time, which is very different than the HVAC world.
Royce Yudkoff:
Yeah, that’s right.
Rick Ruback:
I distinguish between businesses where all the trucks park in the company lot at the end of the day versus businesses where they don't. And where they do, you sort of know who's showing up for work, you know what they're doing, you know their state of mind, you can go talk to them, you can ask them how their families are doing, you can ask them if any issues arose on the job the day before, you can make sure they have the equipment they need the morning as they're going out. But on businesses in which people go away for a week at a time or two weeks at a time, it's a different business. I mean, your supervision is by a phone call or a text message. It's not the same.
Nick Vandam:
That is one of the most challenging pieces in my business line, is keeping culture with very disparate workforce across a wide geography, that I may see someone once every two weeks or a month. That is a challenge.
Rick Ruback:
I mean, we have seen other businesses with this challenge, and it is tough.
Nick Vandam:
We use Teams a lot, and we have standing meetings, and we send a lot of memes back and forth on group chats, and we try to promote just ad lib, you know, water tank conversation in a different manner.
Rick Ruback:
But they're different kinds of people, as you point out, the person who's willing to travel for two weeks to a remote part of North Dakota…
Nick Vandam:
…work in the middle of winter, digging through two feet of ice to lay grounding. I have immense respect for my workforce in what they can accomplish through hell and high water, blizzard, hot weather, wind, storms. I can't tell you how much I respect my team. I am nothing without the team here. I am simply the person that recruits them. I allocate resources, and I lead them on the strategic vision that makes the most sense for the company. But my team is the one that executes, and I'm only as good as how they can execute day-to-day. They're doing the work and I think that's a reason of our success, is empowering our employees to be successful. I need to focus on doing the little things that matter to them and asking them, "What do you need to do your job better? What would be helpful?" Making sure they have the right safety gear, and making sure their trucks are maintained, and making sure that they're getting new ropes for safety climbs, making sure that we have a safety manager here that focuses on that, and keeping that culture intact.
Rick Ruback:
I absolutely agree.
Nick Vandam:
I lead from the front by showing up all the time and being present whenever someone needs me, from a phone call to physical presence, to checking on the crews when they show up at the end of Friday. That is how I feel my best value is to the company, and I think they respond through that. And that's where a searcher, to me, needs to lean into, you are coming into a company to lead from the front and be the captain of that boat. You need to find a company where that energy is going to have the best ROI. And I think the company I'm in has that, where it is very much about leadership. It's a people-based business, and there's opportunities all around where a PE company isn't going to come down and get in the trenches like a searcher will. Find a company where you can get in the trenches and really move the needle. And a family office won't, a PE group won't, a strategic acquirer won't. They're not going to do that. But the energy a searcher can apply, and the knowledge, the expertise, just the smart decision making, is unrivaled in the market. So, find a business that's really going to embrace that energy and be supercharged to get to the next level.
Rick Ruback:
So well said. So well said.
Royce Yudkoff:
Well, Nick, thank you so much. This was a terrific interview and I think people are going to gain a lot by listening to this. So, Rick and I are really appreciative.
Rick Ruback:
Yes, thank you so much.
Nick Vandam:
I'm humbled for the request, guys.
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Royce Yudkoff:
Rick, this business seems like a really good example of the judgment that's called for in deciding to buy a particular small firm. When you and I listen to Nick, I can tell there's sort of triggers going off in both our heads because we see the strengths and the weaknesses here. You know, the strengths are a terrific fit with Nick's skills at working with all different kinds of people. And the strengths are also that you have a set of customers who have a need, that need to maintain and upgrade cable or towers. And those are really two things that make this business tick. But, to be honest, there are also some real challenges you and I see again and again – a dispersed labor force that's just harder to manage because they're not where you can see them every day, and a concentrated customer base that can really lean into you; and a big piece of the business that are projects that can be deferred if the customer feels the need to defer them, are really difficult challenges relative to other businesses. What do you make of this cluster? Do you like the business? Do you have reservations about it?
Rick Ruback:
I like the business a lot. This is an essential service. Like so many businesses, it isn't perfect. The customer concentration is a real challenge, but it's inherent in this business. It's not like there's another business like this that doesn't have customer concentration. There's a reason why the end customer, the cellular telephone provider or the cable provider, is concentrated. And there are economies of scale at that level that are just overwhelming. And so it makes sense that if you're servicing that business, you're going to have customer concentration. That said, the problem with customer concentration there isn't so much, I don't think, that the customer will actively try to squeeze margins. I don't think it's that. I don't think that's what's going on here. What I think instead is, I think Nick's business is too small a piece of their overall cost structure to attract that kind of attention. But I think the biggest problem is it's a little bit like Marriott Hotel Company building a new motel. They know exactly how much it should cost. They know how much every piece of wood, every piece of drywall, every piece of electrical equipment, every plumbing fixture, they know how much that costs because they've done it hundreds and hundreds of times. And I think the same here. I think they have probably a pricing and costing structure because they get to repeat these cell tower repairs all the time and cell tower upgrades all the time. So, I think you're dealing with a customer who's very well informed and the only way you can make additional money is by being more efficient. And that's a challenge, particularly when you combine it with the remote workforce and, quite frankly, the rapid growth. I think, given that the business has more than doubled, really tripled, from its low point, and the wireless division, where much of the growth has been, is basically a startup, because he had to reboot that business after buying it, I think that makes it all that much harder to gain the efficiencies. They'll come in time. Five years from now, he'll be a lot more efficient, but I don't think he can be efficient yet. The other thing is it's hard to figure out where the scale economies come because the way this business works is you're sending a crew out to a remote location to do a project, the crew isn't going to get more efficient. And so it's all about utilization, to have enough project flow combined with the right number of crews so that you can keep everybody at an 80% utilization. And that's how I think you make money. It's going to be hard to gain efficiency at the crew level, I think. And that's where most of your costs are.
Royce Yudkoff:
I agree with that. That was a great conversation with Nick Vandam. Next week we'll be interviewing Jenn Braus, a former plant engineer who decided to remake herself as a searcher and bought one of the best businesses you and I, Rick, have encountered. We'll learn all about the municipal ambulance billing industry from Jenn Braus.
Rick Ruback:
And Royce, I think now is a good time to ask our listeners to send us in some questions. Our last episode of the season is going to be us answering the questions that we hear from our listeners. Listeners, please send your questions. Our email is rickandroyce at hbs dot edu.
Royce Yudkoff:
You’ve been listening to Think Big, Buy Small. We’re your hosts, Royce Yudkoff…
Rick Ruback:
…and Rick Ruback.
Royce Yudkoff:
Katie Zandbergen produced today’s episode.
Rick Ruback:
Craig McDonald is our audio engineer.
Royce Yudkoff:
We’ll be back next week with another episode of Think Big, Buy Small.
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