[00:00:04] Speaker A: Hello and welcome everyone. I'm Peter Lehrman and this is Master's in Small Business M and A. This show is an ongoing exploration into the vast and undercovered world of small business M and A, where we interview both the proven and the emerging owners, operators, investors and advisors whose strategies and methods for transaction success have been put to the test. The show aims to surface the nuanced intricacies, the key ingredients, and the important factors that can improve your decision making in your own journey in the world of small business. MA this podcast is produced by Axial, an online platform that makes it easier for business owners and their M and A advisors to find, research and privately connect with a diverse mix of professional buyers of small businesses. In addition to learning more about Axial, you can find this podcast, show notes, edited transcripts, and many other related resources, all for free at Axial.
[00:00:59] Speaker B: Hey everybody, this is Peter Lehrman. Welcome back to Masters in Small Business M and A. I am extremely excited to have a great guest on the POD today. To start off the new year, Hagan Kapler has started Daisy, about eight acquisitions in about 10 or 11 months. So moving really, really quickly, we're going to dive into the category and the story and everything related to Hagan and the business. Hagen, thanks so much for giving me this time. I'm excited to listen and learn.
[00:01:27] Speaker C: Thanks so much for having me.
[00:01:29] Speaker B: On your website you talk about the idea of building a business around smart spaces. That's the positioning of the category. Just tell us what Dayz is and then let's get a little bit into like how you got excited about this category.
[00:01:43] Speaker C: Thanks so much. We're the first national small business and home technology installation and services company. So we install everything from TVs to speakers, security cameras, lighting, motorized shades, and then the connected systems that tie them all together. One day when we all have robots, we'll be the company that installs those robots and make sure they keep working. The differentiation for us, I think is twofold, essentially. One is this point about being a national brand. We're the only national brand and there's a lot of value we think there in terms of awareness, in terms of route density, in terms of operational efficiency, and then the second is this element of service. So there are a lot of mom and pops out there that do this installation side of the business, which we do and our guys do really well. But we're also implementing an ongoing service component similar to what you'd see in pest control or home cleaning, landscaping. Just having that recurring quarterly visit to just check in and see how things are going in your home.
[00:02:55] Speaker B: I definitely have had mixed experiences with my local AV guy over the years, and I have often thought about whether there was an opportunity to create a brand and create a company that was excellent in this category and that predictably delivered a great customer experience and had a ability to serve the customer after the installation in a way that felt really good. It was always a business idea in the back of my head. Obviously I never did anything about it, but you're doing a ton about it. You've already made, I think, eight acquisitions in the category. Before we get into the acquisition business model and the financing story behind it, I'd love to just understand how you got excited about this category yourself, not just from the consumer perspective, but as a business to pursue. So tell us the origin story and how you got excited about this category after your career in a bunch of related and unrelated categories, just like your experience.
[00:03:52] Speaker C: What we saw across the board, customers on average have 22 connected devices in their homes. So I had spent six or seven years in home services, like I mentioned, home cleaning, pest control, and I just felt like, okay, this is the most important service of all. Yet when you look at the customer's experience, they are as frustrated and overwhelmed as you described. In fact, these devices, when people try to do it themselves, get returned 50 to 60% of the time. So there's a vested interest from the OEM perspective. So there seemed like a logical consumer need. And we set out to just understand the market opportunity and found that it was actually a $30 billion market with no national brand. And I think there's an answer right there in terms of why we don't see that better customer experience. And we set out to meet these business owners to see who might be interested in partnering with us. And from those conversations, we started to identify pain points that led to a better understanding of as we were building up the company, we'd have to not just do a traditional roll up, but like I had done in other areas like H Vac, pest control, home cleaning, that we were 20 or 30 years behind those other industries. We'd have to build out support for these companies in order to make sure that they could thrive, their teams could thrive. The owners are so attached to these businesses that if you go and acquire one of these companies, there's just such a huge risk that the whole business walks away if the owner were to walk away. And so some of those pain points included things like, well, in the course of a lunch, an owner would get 20 calls from customers, 20 calls from their technicians. So we knew we had to build a call center. We also knew we need to build out some better technician support, we needed to build out product support. So have a line of communication through these OEMs, not just for good terms and good pricing, that was table stakes, but have good training and have a seat at the table and be able to say, hey, look, if you can't do business with us in the way that we want to do business, we're going to move all our product elsewhere. Mom and pop in the middle of the country. They're never going to be able to have that kind of buying power with suppliers. There's also a lot of power in having a national beloved brand. I spent time working with Starbucks and I saw firsthand what that means in terms of having that connection to the consumer. And so we've spent a lot of time building out that brand awareness. Most of these companies do not spend anything on marketing. Customer referrals come to them, and that's fine, but there still needs to be some sort of nurturing of those clients. And so we've invested in, for example, CRM, we've invested in Tech Stack to support all these various systems, and then of course, the recurring services. So almost every business who we've met with, they knew that they had to do something on the service side. They knew that they ought to be checking in on clients. They knew that these installation works of art, whether it was a ring doorbell or a total control system, eventually was going to break. Eventually a baby steps in a remote control and you can't get to Bluey anymore. Eventually Sonos does an upgrade. And the way that you got to your speaker system before, it's a little bit different. But it's hard for them to kind of make that math work. And we took principles from our experience in home services to start to build that into our model in a way that made better sense for the consumer, but then also made a lot of financial sense for our owners, for our teams, and then for the company overall. So a huge market, $30 billion market, and then 20,000 mom and pop players, no one really over the size of. Maybe there were a couple who were larger than 10, 15, 20 million, but most very subscale. That to us seemed like a really great opportunity to build a national brand.
[00:08:00] Speaker B: What is your perspective on why it hasn't gotten done yet? Is it just right place, right time, right entrepreneur, you and your team, or do you feel like you have a clear understanding for why, why something like Daisy didn't get underway 10 years ago, 20 years ago, 30 years ago.
[00:08:17] Speaker C: There have been some failed attempts and we've studied those failed attempts. So I do think that we have the benefit of being able to study those attempts. One is they were generally from the industry only. Our company is made up of guys who joined our team after they sold their businesses or one person on our team, for example, founded one of the largest buying groups in the space. And originally we were just talking to him as a mentor and was meaning to go retire. But we're basically a team of failed retirees because people think they want to go move on. And as we start to talk to them, they kind of get another breath of fresh air in terms of a new phase in their career. And so he's now on our team. But we've also brought in folks who come from home services, who come from franchising, come from M and A. And so I think that balance of experiences has been helpful. The other element of failed attempts has been the financing, which I know we're going to talk about. So the prior attempts were either PE or debt. So one just couldn't make their payments on the debt and the other on the private equity side, I think it was just short term approach to a roll up. This just isn't a space that's really ready for a roll up in the way that we're seeing in other home services. H Vac Pest control. We believe that it's going to be much more valuable. If you think About Pest Control, H Vac 20/X multiples on earnings, we think that you're going to see something north of that in this space. But in order to do that, in order to get there, we need patient and flexible capital. Private equity, their investors need to see something a little bit quicker. There's kind of a two year investment and then a couple years to clean the company out and then make a flip to a better owner or a new parent. We just don't think that model works for this space.
[00:10:16] Speaker B: Am I correct? It's been about eight acquisitions in about a little bit less than a year's time.
[00:10:21] Speaker C: We've done eight acquisitions, three conversions. So we've converted three companies to be franchisees and then we've got three or four companies that are starting up from scratch. But yeah, you're right on the eight acquisitions.
[00:10:33] Speaker B: That's fast. Can you explain how you've been doing that? What's the operating model at Daisy that lets you make that many acquisitions that quickly? I would think it's more than Just having sufficient capital. There's a lot of work associated with those acquisitions. It's not just about writing checks. What is the team that's in place that's been behind those eight acquisitions so far?
[00:10:54] Speaker C: I think it comes down to team. The original team was myself and my co founder, Dion Pearson. Deon has decades of experience in M and A. He led the transformation efforts at Terminix, did I think 90 deals in 18 months. Dion also recruited another individual who we both worked with when we were at ServiceMaster, Deanna and I and this other individual, Shiv. We all sold ServiceMaster to Roar Capital in 2020 for an 18 times multiple, 18 times on EBITDA. That was a one and a half billion dollar deal. I was running a franchise home services company where we were rolling up home services companies. Riverside was backing that deal. Dion and I are both on boards of different private equity backed home services companies. So this idea of home services roll ups, we've been at this for a little while and then prior in our careers having been on Wall street and working on deals throughout our careers and then also together we met 10 years ago at Ingersoll Rand doing strategy and M and A. Ingersoll Rand owned Trane H Vac, they own Clubcar, they own Schlage Lock. So we were working on home automation and finding value through connecting homes, connecting buildings, connecting factories at that time. So think it's just an extremely experienced team. Dion's more on the legal side. He has the legal experience, but he's also incredibly strategic and just creative in how to structure and think about these transactions. And by building relationships and really understanding from owners and from their teams where they found value and how to make this a really good home for their companies, we were able to come to an agreement pretty quickly. The risk was always what happens when these guys want to leave or like how do we make it so that they can leave. But in the meantime we were building out the support center really for our franchise organization. It also we thought would help our acquisitions. It turned out that as we got to know our owners, as we talked about what their next phase of their career could be, as we talked about the dreams that we had for Daisy and for the impact that we could have on this industry, all of these owners have stuck around. We had one owner who was like, had his lot picked out in Costa Rio, he was out of here and then he started to talk about, okay, maybe it's just a six month sabbatical and then hasn't taken the day off since and now Fast forward. He's starting a new franchise in Ocala, Florida, right outside of the villages. So it's unlike anything I've ever seen before. So while Deanna and I would love to take all the credit, I think there's something just to be said about the excitement about what we're building in an industry where, to your point, it's just never been done before and we feel like we're doing it differently. We're applying lessons learned. We think we're doing it in a very humble, listening and learning way. But we're still like audacious and excited about the goals we have. We couldn't do it without these legends in the industry. So it's a really nice and exciting group of people. But at the helm of it, having Dion run M and A is no question a killer element of our strategy here.
[00:14:17] Speaker B: How long did you and he know one another prior to getting underway as co founders?
[00:14:22] Speaker C: Over 10 years.
[00:14:23] Speaker B: I've spent very little time getting familiar with home services in this category. Smart homes and digital technology, installation and service in homes. It's been more blue collar trades that serve the home service that I'm more familiar with, whether it's pest control or H Vac or landscaping in certain cases. There's just been a lot of activity in those categories for the last handful of years here. So I've gotten more familiar with those. They tend to consolidate and grow through acquisition on a regional basis. The first business is in Florida. They buy other businesses in Florida, then they go up to Georgia or then they go west to Louisiana or to one of the Carolinas. These eight acquisitions, they're not concentrated in a core region you have already set up through these eight acquisitions. You've made acquisitions in. I'm not sure it's fully the four corners of the country, but you're getting close to that. I think if you aren't already, it would be interesting to just hear how you thought about home services acquisitions from a geography perspective. You clearly didn't do it all in one area. So I'd love to just hear how you thought about what's driving the criteria for acquisitions for you, because it's clearly not all in one region.
[00:15:33] Speaker C: Team is one big driver of why we're able to do these deals so fast. And second is, for example, when we bought this company called Cyber Manor in Los Gatos, California, the owner, Gordon Van Zeiden, was a very well known leader in the industry. All of his friends started calling, hey, Gordon, what's up? I can't believe you partnered with these guys. Can you introduce me? And so that led to more and more introductions and calls. Originally we sent out 50 letters and got 25 back. We've never sent out another letter since. It's all been friends of friends.
[00:16:08] Speaker B: Those were direct mail letters you're talking.
[00:16:10] Speaker C: About like I went to FedEx and I like printed a letter and then a little booklet about who we were. We had done a lot of research to your point. We thought Dallas seemed like a high growth market, seemed like there was a lot of high net worth individuals. Seemed like there were a lot of homes that were in a category where individuals would be spending a lot of money on their homes. For this space, this is a top 1%, top 0.5% of the market category. It hasn't penetrated to home cleaning, where me and all of my friends now pretty much have a cleaning lady. This is a little bit more of an exclusive luxury service item. But anyway. So in Northern California, for example, we now have three locations. So our goal overall is to be kind of the Terminix of this industry. So 20% market share. In order to achieve that, we want to be a 20% market share player in each of our markets, whether we own the location or whether we're the franchise. And we actually feel like that's one of our 10 Pillars of Ways that we can support a franchisee, which I think is really differentiated. I haven't really seen any franchisor offer this before, at least I haven't as a franchisor before, is to go to a franchisee and say, okay, let's talk about who we're going to buy in your market and then we're going to help you go buy them. Because we have this incredible team of Wall street veterans, not to mention this Rolodex from all these industry veterans. We can get a lot of people on the phone and start to have conversations and buy up some of the market. So I think it's a little bit of a combination of both. Southern Florida is another example where we simultaneously purchased First Priority Audio and Cinema Sounds Unlimited. So Cinema Sounds Unlimited just tucked immediately into First Priority Audio. So now we're able to see benefits from a synergy perspective like hard synergies in terms of finding ways to save on a location and those types of things that we hadn't been able to see before. Not to mention teams coming together.
[00:18:15] Speaker B: The markets now, California, Dallas, Florida.
[00:18:20] Speaker C: So the punchline is we're not in Dallas. I'm sure we will be with one of our largest investors. But no, we're not in Dallas. That's M and A. What's the expression Mike Tyson about a plan is great until you get punched in the face? We don't have any Dallas locations. We're in Northern California, Southern California, Fairfield County, Connecticut, and then we've got some locations in Florida. We also are in the D.C. area. Were in Denver. One of our acquisitions, when you talk about strategy, was one of our only competitors in the space. He had launched a franchise model right at the time that we announced ours. And so we joined forces last August. And so we, in conjunction with that acquisition, also got his franchise locations, his pipeline and his sales team as well.
[00:19:06] Speaker B: Was he mostly Colorado centric or was he in the Rockies?
[00:19:10] Speaker C: He was in Denver and looking at the Mountain West.
[00:19:12] Speaker B: Are these businesses working together or connecting in any way with one another right now? It would be really interesting to just hear, I guess, a little bit about what's changing post close for each of these businesses. How much is changing? What are you trying to change? What are you trying to keep the same post closing we did a renovation of this apartment in New York. That's my wife's and my forever apartment apartment. And we made that decision with Lutron and we were afraid and smart speakers and stuff like that. And we just worked with a local AV guy and he's a perfectly nice guy and stuff like that. But it's challenging. We call him when we have problems, but he's not organized around service. There's nothing proactive. There's no quarterly maintenance agreements or service agreements. There's no preventive dynamic to any of it. If the WI fi goes out right now, you and I are going to have to record some other time. What is changing post closing? How are you finding and buying businesses? Are you buying businesses that have solved these problems or are you buying businesses that are similar to the business that I have been on the receiving end of the selection criteria? And what you're changing, I think, is just a really interesting area to understand. What are you keeping the same and what are you hoping to change?
[00:20:28] Speaker C: No one really in this space has unlocked that proactive recurring service in the way that you just described. Almost everyone in this space either knows that they have or they have some sort of $1,000 service plan and some people sign up for it. It's just hard for some people to wrap their minds around that because it's like, well, I just spent $100,000 on this system. I'll call you when I need to call you. That should be how this arrangement works. So one of the many things that we have launched, that has spread like wildfire across our network is this recurring service idea. We call it Daisy Care. For now. As I said, when we launched the company, the acquisitions, the franchising, the support center was really a means to an end. The end being, how do we get this, what I call like a tech guy, Same as you. I'm a mom with four kids. I'm traveling around the country. I want to be like, listening to Bruce Springsteen when I'm making dinner. I want my WI fi to work when I have an important call like this. I want the kids to be able to get online to watch Bluey or whatever. When I need a moment by myself. If that stuff doesn't work, it's really frustrating. And I'm seeing the cleaning lady show up, I'm seeing the landscape guy show up, like, where's the tech guy? And that to me seemed such a, like, no, duh. So what we've been playing around with and, and piloting and essentially launching across the network has been just a free quarterly 30 minute system check in. And we've hired a team dedicated to this in each of our locations. And then the team goes around and they just, like I said, check in. And it's testing to see things like, are the remote controls working? Are things working? How's your WI fi speed? Those types of things. But there's also obviously a conversation that happens in those experiences. So it's funny that you guys have that smaller TV on that huge wall and the customer is like, well, yeah, I know, because two years ago we talked about it and you guys told me the larger TV didn't have as good performance. It's like, well, that was two years ago. Technology is constantly evolving. Or why didn't we put speakers out here by the putting green? And the guy's like, I know, I hate that I don't have them. But what it would be like $20,000. And I was on a visit where this actually happened and our guy said, I think it's more like 8 to 10, but I'll send somebody out. These guys are not sales guys. They're just doing check in. And what we've seen is on average it's $5,000 a visit in terms of proposals. Some are $20,000 and some are just fixing a remote. But it's an average of 75 from a customer. NPS, the customers love it. And it's just taken over in terms of network adoption. We tried just a pilot here with 25 customers here in Orange county spread to 100. And then we heard in Florida people that our branches were just doing it, just making it up as they went along. So we're like, okay, we just have to launch this thing nationwide. Now, what enables that is we've installed a CRM. Because the space has been so under invested, the ability for a mom and pop to be able to get access to what we would think are basic technology tools, like a CRM, like field service technology, like a really solid ERP is just really challenging. And again, in Pest, you have your pick of field service technologies. It's hard to choose which one. And they're all pretty affordable and they all do the job really well. That just does not exist here. It's like a Frankenstein of these guys kind of putting systems together. Now we have one consistent CRM. So you can imagine I can have thousands of customers who I've touched over the last five years, tens of thousands of customers, and the system can tell me, okay, these 80 customers probably need an Apple TV upgrade because that's why their performance of their TVs are degrading. And AI can probably just send an email, we don't even really need to touch. And they could say, would you like us to come out and visit? And it'd be this much. And while we're there, we're getting to know the customer. Now this is just because we're initially getting back into this. The goal here is we're really the steward for customers for their lives. And we think it's like a two way street because it's not just about upgrading or upselling and it's not just about things breaking, but it's also about things change in your life. And also, how am I supposed to keep up with all the changes of technology? I'm about to go to ces. It's incredible how much is changing and prices are changing. So we just think that our role across the country is just to bring customers along and then all these tools. So, for example, HR is another area where we found that our teams couldn't keep up with the sales that they had. We had barely turned the knob on marketing and we just could barely keep up with demand. We had to get more technicians. And these technicians have to be very experienced. There's no trade school here. That's something that we're working on, but that's a longer burn. So we had to develop. We hired a recruiting firm with no experience in this space because we didn't want to have someone who was tainted or someone who was poaching or someone where we get accused of being shady in the industry. So we just trained our own team externally to help find really talented experienced technicians and salespeople. So now we have a really good pipeline and great way to get experience so that we can both staff this recurring service engine that we have and then make sure we have technicians and salespeople who can kind of keep up with that demand.
[00:26:05] Speaker B: Maybe it would be helpful to just make sure Any listeners who don't know what the core business model is for the incumbent smart home technology, installation and services business, where is the margin? How do the businesses make money today? It's clearly not a recurring revenue service agreement. That is the source of the revenue and the margin. Today they're selling third party equipment. Is the margin and the profit in the markup on that, is it in the labor? What's the core business model today? I understand the introduction of this recurring service model and it's leading to five to $20,000 bids each time you go out there. But what is the baseline business model today? The that you're going to inherit as you buy these businesses and I'm sure you're going to make changes to them. But what's the day zero margin structure and where does the money get made?
[00:27:00] Speaker C: Yeah, the equipment kind of is what it is because anyone can go online and find out how much a Sony TV is. You can negotiate. Most smart AB players have an agreement where they're part of a buying group so they can get a few points here or there. But generally from a gross margin perspective, just including the equipment, you're seeing 60 to 70% gross margin and then the rest is labor and then all the other costs to support. So you have an office, you have trucks, and it's generally, I would say 90, 10, maybe 85, 15 installation. And generally the EBITDA net margins you're going to see are as low as 5 to 10, upwards to 15 to 20. Our top branch is at 30%, so we feel like we have some best practices that can help branches be well above average. Right now, on average we're at 17 actually from the EBITDA perspective. So we're doing pretty well. But our goal is to be well above average. Some of the areas where we dive in and help our branches, whether they're a franchisee or an acquired branch, are pricing. And this is something I saw in home services all the time. It's just really difficult to make that leap and make updates to pricing, whether it's on your service deals, but mostly the changes you'll make are on labor. Say you're charging $165 an hour in labor, up charging it to like 190. And I don't think you'll be surprised to hear when we do it, customers never complain. They're just so happy that you're there to fix the WI fi that broke yesterday or to put in the stream system. Generally, I would say 80% of the time we're working directly with the trades. So you're working actually with a builder, custom builder, or you're working with an interior designer or an architect. Our franchisee here in Orange county, they work more directly with retrofit with existing customers. And we love that. When you say, what are you looking for? We're pretty open. We're looking for folks who, if you're an acquired company, you're willing to share and willing to be a test kitchen, willing to pilot, willing to be kind of a petri dish, because that's what we view the purpose of our acquisitions for. If you are a franchisee, you want to make sure you're open to like doing that a little bit, but also listening. If you've never been a part of a network, if you've never been a part of a buying group, probably not going to be a good franchisee. You have to show some willingness. It's like saying, I want to lose weight, but you never going to diet. You've got to put in the work. You've got to like, ask the questions. You've got to join the calls, be a part of the network. Part of what we do is pricing as the one lever we can help on the bottom line from purchasing, because we're negotiating, we think, really good terms and trying to get some group purchasing advantages, making sure that, for example, all the wires that we're buying, those types of things have more power from that perspective than others.
[00:30:04] Speaker B: The service model and the recurring service, what is your vision there? What's your point of view there? Does that become a product line that you charge for or is it better off as this free quarterly thing which just leads to more quoting per customer? How are you thinking the business model evolves around this house call thing?
[00:30:25] Speaker C: I think you have to charge for it. We're just still in pilot mode. So we just haven't decided. It'll be something like 49.99 a quarter or something like that. And the reason is I want to make sure that when our franchisees go to sell their businesses, when they're working on their succession plans in three to four to five years that that is seen as a true recurring business and they're getting that benefit for it. So I do want to make sure they're seeing some sort of revenue aside from the $5,000 a proposal. But we think it's a multi billion dollar business as it is. Even without charging. I just don't feel like right now, as I'm working it out. Let me first figure out the value proposition. I don't want to punish the customer while I'm trying to figure out exactly what the value proposition.
[00:31:16] Speaker B: I mean, I would happily pay $49 a quarter.
[00:31:19] Speaker C: I already know it's too low. See?
[00:31:23] Speaker B: Yeah, exactly 99.95.
I'm still there. You still have my bid. I spend a couple of days at home working in addition to working at the office here in New York. And so the home office is more important today than it was pre Covid. It's just way more strategic and I have a bunch of people that are 100% remote in a way that I never would have had before 2021. So I just think there's way more homes that are now offices than there were in 2019 and 2020. They truly are full time offices. And so that's gotta be part of the opportunity for Daisy. Just the fact that there's so many more homes that are now true offices and need to perform at that level. Tell us about franchising and tell us about what you've done so far in the way of franchising so far for the business and what you're hoping to see open up in terms of flexibility and growth there.
[00:32:18] Speaker C: From when we started the company, we knew that the acquisitions were a way to build out through flagship locations of foundation upon which we could have some credibility in the market so that we could go do franchising. One of our first companies who we met here in Orange county, who we really built the company right alongside with, he got excited about this idea of being able to participate.
Sorry.
[00:32:51] Speaker B: I was going to push pause, but I actually think we need to keep this.
[00:32:56] Speaker C: See that would be great if I had a Daisy truck roll up right as we're talking.
[00:33:00] Speaker B: I'm not sure where we were, but we just had an absolutely. Almost like it was on cue. We had just had a little it blip in Hagan's Orange county residence right.
[00:33:10] Speaker C: At the time that my kids nanny walked in the door. Just perfect.
[00:33:14] Speaker B: We were just talking about franchising. We can pick it up there. I wanted to just really understand the flexibility that you have around it. Why it's central to the Day Z strategy. I think it's a really interesting area. You, you hear so much about home services M and A consolidations and you don't really hear much about a franchising story here. So anyway, that's what made me really interested in talking about it.
[00:33:35] Speaker C: We call it a Fran up instead of a roll up, which we think is really cute, but it's not really catching on. Never gets a laugh when I say it. So maybe I need to buy it. We feel like, given the fact that valuations are so low in this space, just because there's no real consolidation happening, and given that there are young owners who, when we talk to them about a potential acquisition, they're kind of like, okay, so you'd not really give me the value that I think my business is worth. What would I go do next? Anyway, part of this is they have really poor quality of life because like I said, they're on the phone all the time with customers. Friday night they try to go out to dinner with their wives, they're taking calls from technicians, or trying to get out to dinner with their families. Part of this franchise model is pay us and get support for your business. Get support for yourself. As you improve your quality of life, you're actually increasing the value of your company. Because if you're improving your quality of life, you're stepping back from the business, which makes the business a lot less risky for a potential buyer. Meanwhile, as part of our franchise, we're building out our own stable of buyers. That's what we do. We have our own sales team and we're out there marketing the brand and marketing this franchise opportunity and helping you consolidate, like you said, within your region and building out that route density and figuring out ways to make this a more valuable business. So we're talking to owners not about converting their business and just to kind of put dollars in our pocket. We're talking about how do we help you create real generational wealth while improving your quality of life. All along we said, okay, let's do some acquisitions, create a foundation and then go and franchise just to scale. And we knew that profitability wise and recurring revenue just from an investment standpoint and as an entrepreneur looking to get investment dollars, that would make a whole lot of sense on a piece of paper. But when you talk to owners in this space who are some of the most brilliant, most creative, I mean, these are guys who have been tinkering, coding, putting together these pretty brilliant technology systems in people's homes and in small businesses, but they get no value for the company. They've got nothing to speak for it at the end of their careers. I've met terrific pest control owners, but how does that make sense that that guy's getting 20 times and these guys are getting a fraction of that?
[00:36:04] Speaker B: What does explain that? Is there something structural that is explaining that incredibly high multiple in pest control relative to this? What is the explanation for that? There must be something rational there.
[00:36:14] Speaker C: The owners can be pretty detached from the business, so they can spend 40% of their time in the business. High recurring service business, pretty much all recurring. You go around spray pests, it's $250 a quarter or whatever. Now, the difference in this industry is we come around every quarter in pest. You can never tell a customer, okay, now actually, the spray is $1,000. It's so much better than it was. There's no opportunity to like, enhance the value of the spray or what you're offering. So we're really excited about the value potential of this recurring service. We think it's going to be the most value, it's the most important home service, and we think it'll be the most valuable once we kind of operationalize and unlock all that value. But, yeah, the recurring service owner's pretty detached from the business. There's still a lot of fragmentation. So the top 20 players still make up half of the total market. So there's still a lot of consolidation opportunity. I'm on a board of a small pest control company in Phoenix, and we still have a ton of companies that we can consolidate in that market and the markets around there and build out a really strong marketing presence in those neighborhoods so that we can take that to a potential financial sponsor or strategic looking to be strong in that space here. There's just so many risks because, like I said, everything's in the owner's head. There's no real systems or technology in place. There's no trade school that's feeding you the talent here. Because we're building all this from scratch, we're kind of helping to take that risk away.
[00:38:01] Speaker B: On the franchising side of things. If someone was to build DayZ, but 100% through M& A, and then someone was to build day Z 100% through franchise, I think maybe we can dispense with a conversation around what you need to be great at. If you want to do it through M and A. If you want to do it through M and A, you've got to be great at sourcing. You've got to be great at integration, you've got to be great at underwriting. You've got to be great at the post closing things. If you wanted to take Daisy and let's say 70% of the growth from here to 20 years from now with Daisy is going to come from franchising as opposed to from M and A, what do you need to be great at in order to be a great franchisor versus to be a great buy and build acquisition consolidator? What goes into being a great franchisor? What's the McDonald's secret recipe that has worked so well and what are they so great at that you would want to be great at as a franchisor and not as a pure M and A consolidator?
[00:38:59] Speaker C: In this space, it's not too different. That's the thing. In this space, to be great at M and A, you also have to build out resources and support for your franchisees and really, truly like care and support for them and not just pay lip service to it. And so many acquirers and so many franchisors do a song and dance during a sale process. In this case, you can't kind of hope for the best. You really do have to help make sure you're feeding talent. You have to really build out training and support materials for the front line, which we've done. We've built out career paths for all the talent. You're a little limited on the franchising side just because the employees aren't your employees. But that's where having these owned operations really help. Because we can say, look, every time we do an acquisition, we give full benefits to every technician and their families. Because this is a service business and people are our most important.
We don't make speakers and we don't make tv, so we have to make sure our people are well cared for. And don't just take it from me, look at the results. That's all I can show you is what that ROI has been. We give every single one of our employees stock in the company. How do you, Mr. Franchisor, make sure that you're helping each of your employees participate in the value creation of your company so that when you do turn the company around, you make sure that every day people are waking up and trying to help you achieve that payout right along with you. All that support for the owner or for the manager, it's the same on the franchisee side as I think it is when you buy the company in this space, just because the space has.
[00:40:51] Speaker B: Been so neglected, are there Any considerations related to like corporate owned versus franchisee in different territories. I just don't know the Starbucks story or the McDonald's story, these other sort of big franchise versus non franchise stories. Well, but would you consider locations? Is it really just situational and just getting the right people? And in some cases that's going to work well with a franchise and in other cases it's going to work with an acquisition. Is it just situational?
[00:41:19] Speaker C: It's definitely selecting markets. And in our case we just have a lot of flexibility and options. It could turn out that called greenfield or Net new. It could be bringing people from outside the industry and having them start from scratch. We are investing in that. We really want to make sure they're successful. That could be a path that we decide to supercharge. It could be a path that we decide to emphasize more the conversion play for a little while until we make sure that we can get that net news story right. So I think that's another element of where the venture funding helps a lot because we have flexibility. In our business case. It's not like private equity necessarily, or at least my experience with private equity where there's one business model and I better stick to it. Also, I'm an owner. I'm in control here, so I can play around with these options and make calls. Before I was helping on behalf of an owner, I had an obligation there to follow down a path that someone was directing us toward. Here we have options and so it's different. I think to be in the driver's seat optionality is super helpful and looking at the data and seeing which one works best in terms of franchising. Certain markets, sometimes they just take longer to get clearance to be able to be a franchisor. New York actually is one of those. Have your AV guy give us a call if he wants to be purchased by Daisy because we give him a great deal.
And since we already own in Fairfield county, we're not going to necessarily plop a franchisee and have them compete with our own location. Fairfield County, Westchester County, Manhattan. That's probably an area where we're more likely to grow through acquisition.
[00:43:05] Speaker B: I see. If I heard that correctly, that's just because the licensing complexity is simplified by acquiring.
[00:43:12] Speaker C: For example, we don't have approval to sell a franchise in New York quite yet. Their process takes longer.
[00:43:18] Speaker B: And that's a state approval process you're going through. Hagan.
[00:43:21] Speaker C: You have to be approved. Certain states you have to register.
So you've got to make sure that you've got Approval in those states. Some are just faster than others.
[00:43:31] Speaker B: I'm not surprised that New York is not that fast. And I'm also not that surprised that the Sun Belt states are probably much faster and much easier.
[00:43:40] Speaker C: But since we already own a location in Fairfield county, we were more likely to want to own something in Manhattan anyway. Plus, it's kind of cool to own something in Manhattan.
[00:43:52] Speaker B: I agree. There's also a ton of great opportunities, probably on the eastern end of Long island with all the incredible real estate in the Hamptons and the Hamptons area.
[00:44:00] Speaker C: What we find, and we find this in the west coast, we find this with this clientele. When we're talking about this high end luxury market is clients don't usually just have the one home. They also have a home in Park City or they have a home in the Hamptons, or they have a home in Palm Desert, or they have a home in Tahoe. And so if they're building these homes, you want to have your trusted tech guy. And so our teams will get flown out to the Bahamas for two weeks. And that can sound like a great idea, but it can take a toll, you know, on the financials. It can not necessarily be the best thing for the team and not necessarily the best thing for the customer when the WI fi goes out and we're halfway across the country or the world. So that's another example where owned franchise just having kind of locations across the country may not be your project manager, might not be your owner, but we'll have a daisy badge and you know, you're getting good, reliable service. And so we think there's, you know, real benefit there.
[00:45:02] Speaker B: That sounds really powerful. If you can get it to that level of density and scale, that makes total sense. I know you got to get to Las Vegas sooner rather than later for ces and it sounds like also maybe you got a couple of your youngsters pulling in from school. So let's just cover financing real quickly and then I'll let you go take us through the financing of the business. It's a 10 month plus or minus old business. So you finance the business at inception and I know that at least some of it is venture backed. Let's just hear a little bit of that story and the why behind how you selected your initial capital partners.
[00:45:36] Speaker C: We've been really lucky. Bungalow and Goldcrest have been our lead investors.
[00:45:42] Speaker B: How did that happen? How did those two come into your orbit? Or how did you get into theirs? And how did venture firms get excited about smart home installation before?
[00:45:50] Speaker C: Two summers ago, I Had been running Threshold brands, and one of our brands was Made Pro, one of the largest home cleaning businesses. And I always had this idea that we needed to have some sort of an app to communicate with customers. As a customer, I'm more likely to want to be texting my cleaning lady or texting our office when I'm boarding a plane or online at the grocery store than trying to talk to somebody on the phone or call somebody back. And it's just very challenging for franchisors and for teams when you're pretty far along to be investing in those types of technologies. Interestingly enough, not a daisy. Those are things we're doing from day one. But in our case, we weren't an engineering firm. We were a home cleaning and a marketing company. But there was a company called House Account. They were a team of guys who had been very successful digitizing the food space. So they all had, I think, moved to the suburbs and realized what a pain it is to try to manage a home. I guess you experience it in New York City as well. Were trying to do the same thing in the home services space and thought that maybe they could do it better at scale with a franchisor. We had done a pilot together very successfully, and they had a seed investor, Bungalow. When I was coming up with this idea and playing around with a very wordy 50 page, my background is Goldman Sachs and McKinsey. So it was a very McKinsey E deck. And I sent it to the founder of House Account and was like, do I have something here? Unbeknownst to me, he had forwarded along to Bungalow. And Dave at Bungalow started to give me some pointers and was very helpful introducing me to other folks just to continue fleshing out the ideas. And eventually asked if we would be interested in having them invest. And then introduced us to Goldcrest. It was great. Just friends of friends and from past experiences in home services, which was great. Now, why were they interested Bungalow? I think from their experience with House Account, they were interested in investing in Main street types of companies. More like SaaS, though. I said to Dave, if you looked at this P and L, the P and L that I had drawn out in the business plan, and you didn't know that it was a home services company and you didn't know it was a franchise company, Wouldn't you think it was a SaaS company? It has a lot of very similar characteristics. Recurring revenue, very profitable, wildly profitable. And he was like, yeah, you're right. And then I also said, you talk about Main Street Isn't this, like, as Main street as it gets? We're talking about taking small businesses, investing in them and booing them up, supporting them, helping them, giving them generational wealth. We're talking about every franchisee being on, like, a private jet to get to their convention. I mean, how cool would that be if we could enrich these people's lives and enrich their wallets? And so that was the push I made to him. I'm not sure. Some other investors that came in Bullish. And Bullish is a purely B2C type of A venture investor, but they also are marketing an ad agency. So they've helped us with our yet to be unveiled new branding so that we are reaching more of a higher end, more of a tech target. They've been terrific to work for. One of our missions is to be a beloved brand. And so they've been really helping us to get in touch with who is our muse, really speak to that end user, make sure we're thinking about her and what are her aspirations and where does she shop and making sure we're in touch with that. Consumer Burst is another investor. Their team is made up of the original team from Yelp. So again, thinking about a bunch of guys here in this industry who don't use any marketing and turning on digital, we think is pretty interesting. So those are our investors. And originally it was a $2 million round. We also have a bunch of angels, so friends of mine from business school, friends from high school, those types of connections. The second round was a larger round to get us going on some of these acquisitions. And then the Series B, we had an outside investor come in with some interest. They were local here in Newport beach, which led to our existing investors jumping in and saying, we'd like to keep things how they are. So that was terrific. So very opportunistic. From our Series A on out, is.
[00:50:27] Speaker B: The business levered in any way? Have you taken on debt through the acquisitions?
[00:50:31] Speaker C: No.
[00:50:32] Speaker B: No seller financing either?
[00:50:34] Speaker C: A little bit. We've had some seller financing.
[00:50:37] Speaker B: So the eight acquisitions have largely been just off the equity capital balance sheet. Plus seller financing.
[00:50:43] Speaker C: Yep. One or two have seller financing and some have very small payouts just to continue to keep the teams motivated.
[00:50:50] Speaker B: And then they're rolling a lot of equity into Daisy?
[00:50:53] Speaker C: No, we've given out equity and options just as a benefit or as part of the purchase price, but, no, not necessarily rolling anything in.
[00:51:04] Speaker B: I'm excited for you to get to New York. I'm excited to see you guys continue to build the company. It's really, really exciting. I can't believe how much you guys have done in about a year's time. What are you working on this year? I'm sure you'll do more franchising and acquisitions as the opportunities present themselves operationally. Is there one big worry, one big focus, one big priority with these eight businesses? Is there one thing that is the main thing for 2025? I know it's early in the year, so I'm curious whether or not you're aligning around one big idea for all the businesses that you've already acquired.
[00:51:39] Speaker C: I think continuing the momentum on recurring service. So Daisy Care getting that. Just making sure we're supporting Daisy Care and getting that going. Otherwise it's things like getting the brand on all the trucks that we still have to wrap all our vans and change over signs. We were just waiting till we had our final brand and logo, updating our website, some blocking and tackling there, but nothing that was keeping me up at night necessarily. I think Daisy Terra is kind of the biggest to do at this point.
[00:52:09] Speaker B: Thank you so much for this. It's been really fun. I feel like it's been my personal masterclass in franchising and home services and wish you the best of luck and just really excited to follow the businesses rise from here. So Hagan, thanks so much and safe travels to ces. It was great to be with you.
[00:52:25] Speaker C: This is so nice of you. Thank you.
[00:52:27] Speaker A: If you enjoyed this episode, check out axial.com there you'll find every episode of this podcast as well as our recorded Axial member roundtables, some downloadable tools for dealmakers, Axial's quarterly league Table, rankings of top small business owners, acquirers and investment banks, and lots of other useful content that we've created over the course of time. If you're interested in joining Axial as either an acquirer, an owner considering an exit, or as a sell side M and a advisor, you can get started for
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[00:53:15] Speaker B: Peter Lariman is the CEO of Axial. All opinions expressed by Peter and podcast guests do not reflect the views or opinions of Axial. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Podcast guests may have ongoing client relationships with Axial.
