[00:00:04] Speaker A: Hello and welcome everyone. I'm Peter Lehrman, and this is Masters in Small Business M A. This show is an ongoing exploration into the vast and undercovered world of small business M 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 decision making in your own journey in the world of small business M A. This podcast is produced by Axial, an online platform that makes it easier for business owners and their M 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
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Peter Laraman 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.
[00:01:21] Speaker B: Everybody, welcome back. My name is Peter Lehrman. Welcome to Masters in Small Business M and A. I've got a fantastic guest today. Really excited to have him on the show. Sang Cho, co founder and CEO of cooperative Laundry, has a really, really interesting career, 100% in and around the commercial laundry business. Not a lot of us know about this category, so I'm really excited to dive in saying thank you so much for making time to hop on the show with me.
[00:01:47] Speaker C: Thanks, Peter. Good to finally get it done.
[00:01:49] Speaker B: Yeah, exactly. So there's a lot of different places to get started, but we decided let's just lay out the commercial laundry landscape a little bit. For laundry, it's not a landscape or a category that gets a lot of airtime. I haven't heard it talked about on a lot of other private equity or M and A or owner operator podcasts. So let's give it 15 minutes of fame and just sort of lay it out there.
[00:02:12] Speaker C: Yeah, commercial laundry is. We'll get this later, but I've looked at a lot of businesses. It is one of, if not the hardest business that I could imagine, really, because there's so many elements to it. It's still very much a mom and pop business. So you'll see mom and pop dry cleaners that obviously have to process all the linen. So they have to know laundry really, really well. Then they have to transport it. So they got to know logistics really well. They have labor. So there's all kinds of labor management, certainly in big cities like New York and California and LA that. All kinds of Workman's comp and department of labor issues that you got to be a pro at. There's contracts, so you need a good lawyer. There's complex accounting with depreciation and all kinds of complicated capital structures. If you have different loans with different types of lenders and ABL, maybe. And it's kind of a relentless 24/7 grind. The hotels or hospitals, which is predominantly what most mom and pop laundries are servicing, the uniform workwear is pretty mature. You see those with, like, syntos and unifirst and those bigger shops. But the hotels and hospitals, they operate 24/7 they don't have enough laundry or linens to go a few days without service. So they need service seven days a week. There's no Christmas.
I can't remember the last time I was able to have, like, a holiday party with all my employees is because everyone's working throughout the day a lot of times. A lot of the companies I know of that I'm friendly with are operating 24 hours a day, seven days a week. I mean, they're literally turning their equipment over from shift to shift, and they need that just to squeeze by on a basic amount of margin to feed their families and service their debt. So, yeah, it is a really difficult enterprise, but I hope Matt probably talks some people out of the laundry business just now.
But, yeah, it's a really tough business.
[00:04:16] Speaker B: Who dominates it? Does anyone dominate the business? And how is it structured in terms of. Obviously, you want the facilities to be near the major customers that you serve. Right. So I'm sure there's a geographic, a major geographic element of this, but what does market share look like? Are there significant market share owners or. Not really, yeah.
[00:04:36] Speaker C: I don't know of any. Whatever so called national players in either the healthcare or hotel space. There are companies that are, like, multiregional, like we are, but most companies are going deeper versus going wider, and I think that's just because, like you said, it's wash and return. So normally what you pick up on Monday, you deliver on Tuesday, and then what you picked up on Tuesday, you deliver on Wednesday. So our facility, if we're more than a two to three hour drive away, and that's really pushing it, but if we're more than two or 3 hours away, it becomes a pretty hard service proposition.
[00:05:17] Speaker B: Before we jump into your story in this category, let's just make sure that it's clear exactly sort of what is the core motion that a commercial laundry facility executes in any given day? Or any given week or any given month. Is it, you have a series of geographically sort of concentrated customers? And are you picking up typically every day and returning every day? What is the core motion that the commercial laundry operator makes?
[00:05:46] Speaker C: Yeah, so just soil the clean. You pick up the soil.
Let's use hotels because that's what we do. You pick up the soil at the hotel within some window, usually a two hour window. You bring it back to the laundry, you sort it all because you got to separate the linens from the towels. You wash it, you dry it. There's all kinds of levels of automation in there that varies wildly. Then you have to iron it. If it needs ironing, fold it, stack it, count it, bill for it, pack it, put it back into the laundry cart, deliver it without making any mistakes, because if four seasons gets a holiday in sheet, they're going to be pretty pissed off. And then when you deliver the clean, you can't take a break because then you just picked up a whole nother turn of dirty that you got to do all over again. And in that process, you probably have, I don't know, several hundred employees that are touching things and feeding things and moving things around and invoicing things and managing your business. And that's happening, for the most part, seven days a week. Some markets are lucky to have certain holidays off, although that's the exception to the rule because hotels are busy during the holidays. And same thing goes for hospitals. The only difference in hospitals, which gives it a little bit more flexibility, is that if you break your arm and go to the hospital, you're not going to complain about the hospital bed having some wrinkles on it. You're just like, my arm hurts, let me in the bed.
There's less of a quality issue on the hospital front, but same problem. It's high volume. You got to get a lot of dirty stuff clean real fast, can't mix it, can't lose it, got to bill accurately, and you got to do that every day, 365.
[00:07:27] Speaker B: And what are contracts like? Are they multi year? Are they single year?
What are the sort of primary structural elements of a contract? You contract with a hotel, what are the key elements of a contract look like duration terms?
[00:07:44] Speaker C: Yeah, we're all over the place. Ironically, my preference is to have a contract that is as short as humanly possible. For once, a decision I made helped our business because we were able to adjust pricing pretty quickly with inflation affecting our business on multiple fronts, like a lot of other small businesses. But I've had five year contracts, I've had kind of 30 day renewing contracts. I'd say the bulk of our contracts are anywhere from one to three years, and that's probably the case across the country.
[00:08:17] Speaker B: Okay, got it. Yeah. Most of the time you hear people talk about wanting to have really long contracts, not really short contracts.
[00:08:23] Speaker C: Yeah. Laundry is weird. I've spoken to a lot of private equity guys about laundry, and they're like, oh, my God, it sounds like the most incredible business. And I said, tell me why. And it's all the buzwords you hear about, right. It's like, oh, you guys have recurring revenue and contractual agreements, and you have. What are the other ones? High barriers to entry, like, all the stuff. It's like we fit, like, an MBA case study of businesses you want to invest into. The problem is just like, doing it every day, right.
It's a hard way to make business every day. I think there's a lot of great things about the business. I know basically how much revenue I'm going to pick up every single day. I can pinpoint it to a couple of percentage points, and I can forecast that out with a high level of accuracy out a year or two years. I have a wide availability of customers. They're easily identifiable, and they're within a pretty defined service region. And these are all great, but there's a lot of people in the market. There's a lot of mom and pops in the market still. And I think that that is good in that there's people servicing the linen, and it's a hard business, but it's bad in that it's hard to capture synergies when you're competing against 25 really small companies that are willing to do anything to survive. Right.
[00:09:35] Speaker B: What's customer concentration look like? That's another part of the private equity template. Some of them are capable of and comfortable sort of running at that fire, but a lot of them get a little bit queasy. When you lose a customer in the laundry business, do you typically lose, I mean, are you losing single digits of revenue, or does it tend to be a more significant hit to revenue when you lose a customer?
[00:09:59] Speaker C: Yeah, we've gotten a little bit more confident. So as recently as we've gotten more comfortable with our business and our technology, I would say that the Vast. In my first laundry company, I had over 100 customers. No customer made up more than 4% of my Business. We have a little bit more concentration now, but we're still not double digit. But I think the question is, like, if you lose Marriott Hotel A, you're not going to lose. Marriott Hotel Bc D E that you all they operate as independent assets and properties.
[00:10:36] Speaker B: Why is that?
[00:10:38] Speaker C: Hotels have their own personality. The general manager, which is basically the king or queen of that asset, might have a company they've used forever and ever and want to bring in. Yeah, I don't really know.
[00:10:52] Speaker B: It's very location specific.
[00:10:54] Speaker C: It's location specific, but it has just always been pretty volatile from a transaction standpoint, whether that means changing out suppliers or changing linen brands or a host of things, changing owners. Hotels change ownerships all the time, and it happens pretty quickly that they change flags. It goes from a Hilton to a Marriott, and then Marriott's got its own idea of doing things versus Hilton. It just seems like there's not a lot of permanency in the hotel industry and as a result, hotel suppliers are kind of reacting to that volatility.
[00:11:27] Speaker B: The we've hit the tip of the iceberg in terms of just the basics on commercial laundry now, but at least anybody who's never heard of it before can follow along for the rest of the conversation. In the world of small business M A and owning and operating small businesses, there's a lot of searching for businesses that gets done by people who are looking to search for and then buy and then operate a business. And a lot of times they have no historical connection to the business. They're just searching for a business to buy. Your story starts out totally differently. You've got a clear connection to laundry, and in addition to having a really clear connection to laundry just through your family, which we'll get into, I want to start sort of there. You also have the benefit of now having at least had two lives in commercial laundry. You've had an opportunity to run and operate and scale a business, to make a whole bunch of great decisions and a whole bunch of bad decisions, and then to turn a new leaf and start over a handful of years later. And so I want to sort of create time for the whole arc, but just take us into dry cleaning within your family and your family business as day one. Help us understand sort of how that got started for you. When did you get connected to the business? How old were you when you started working alongside your folks? Just tell a little bit of the story before you took it over and scale it.
[00:12:43] Speaker C: I love talking about this, especially preaching and promoting the korean american spirit and the immigrant mentality. And I'm sure we all know, like a korean dry cleaner or a korean nail salon. Growing up, I came to America when I was three. Two or three years old, and my parents have owned a dry cleaner as long as I can remember. So, like, weekends, it was not unusual for me to spend an entire weekend inside the dry cleaner because my mom was working the counter and my dad was pressing shirts in the back. So it was just our life. It was a retail shop. Imagine what you might imagine in main Street, USA. I grew up in the midwest, near Indiana, and it was a wonderful upbringing. I'd never really thought anything of it until I got a little bit older. And then if I needed $30 to do something, take my girlfriend to the movies.
My dad came up with this deal where he's like, all right, it's fifty cents a shirt, which at the time, I thought he was, like, exploiting my young energy, but come to understand now that it was, like, the worst economic transaction in the history of capitalism that he was making with himself. So that was my thing. And I knew all the guys, and if I needed to make a few hundred bucks, I knew the routes that tipped well in the city, right? Because we ended up moving to New York City when I was, like, 14 or 15 years old. So I knew, like, Calvin Klein's apartment. I could always count on $100 tip there. So I'd come in for that delivery. So it was was. I never planned on getting into just, it was my family's thing. And we always did. Like, we weren't know, but we had a nice house in Jersey, and I went to a nice public school, and everything was good. And then I graduated from high school, got into a university that I got rejected from all the schools I wanted to go to, and got into the university that I didn't really want to go to. So I decided to join the military. So I graduated high school on Friday, and I left for boot camp on Monday, went to the marines, and did that through 911, and ended up deploying to Iraq. And I didn't go for a sexy career. I was like, the easiest one in the recruiting office. They're like, yes, sign me up. Infantry. No, I scored pretty high on the test. Like, whoa, there's counterintelligence. Like, no, I want to be, you know that movie platoon? Like Stanley Cooper? Like, put me in. Like, I want to be full metal jacket, regular infantryman. And so I didn't get, like, a signing bonus. I didn't know that was such a thing. So it was a terrible move on my part, but I ended up becoming a combat infantryman and deployed. And when I got back home, went to university, and the school was great. They gave me a ton of credits for my military service. So I graduated pretty quickly, decided to major in philosophy. So I was a philosophy major with a. I was a combat infantryman with a philosophy degree looking for a job in something. I had no idea.
[00:15:29] Speaker B: I love it. Unique, minimally.
[00:15:31] Speaker C: I was living at home, and my dad's like, what are you doing? And I was like, I don't know, man. I got to do something.
I think I came home from Iraq with, like, $14,000, which I was like, oh, my God, I'm so rich. This is incredible. I never have to work again. And that money obviously ran out pretty quick. So my dad said, come work at the laundry, come work at the dry cleaner full time. And I thought about it, and I said, yeah, why not? I'll do this for a couple years, and then I'll get out of here, try to become a New York City fireman or a cop or something like that. So I'm going to go for my dad, and pretty quickly, I noticed this weird thing where he had this one hotel account and still doing mostly retail, he had this one hotel account, and every time I would deliver to this hotel, they were so nice. They offered me water, this beautiful lobby. I'd pick up a hefty amount of dry cleaning and laundry, and I noticed pretty quickly that this was way better than waiting for John Smith to walk in with his two suits and four shirts. And one day, I remember this guy just yelling at my mom, like, saying a lot of bad words because his shirt was stained or something like that. And I had just come back from this hotel and just being, like, super pissed off. And I think it was August in the city, too, so that wasn't a good feeling in a laundry. And I remember just telling my dad, like, dad, what are we doing? We need more hotels, right?
[00:16:51] Speaker B: Switch away from retail and move to the commercial side of the whole business.
[00:16:55] Speaker C: Exactly. And he had all the things, I'm not good enough. I don't speak English. I don't know how to write contracts. I don't know this, that, the other thing. And to his credit, he kind of just was like, look, if you can get more, I'll work as hard, as much as volume as you can bring in from the hotel. So we six xed his business in a year. I mean, I don't even remember the numbers, but we went from, like a 07:00 a.m. To 03:00 p.m. Business to, like, a 04:00 a.m. To 02:00 a.m.. Business and I'm super pumped, making good money and my dad's like, what the hell just happened? This is crazy. In like, I don't know, 2000 square foot dry cleaner on First Avenue in Manhattan. So we branched out and I decided we were going to build this crazy laundry in long Island. I had no idea what I was doing, I had no idea what a tunnel washer was, which is like this washing machine that's the size of a school bus. And I kind of just hung my whole life out there. And in many ways my family did also for me and built this crazy laundry company. It was like just one example of, tell you how little I knew. I bought this building in the middle of nowhere, like an hour and 20 minutes away in New York City. Traffic off the lie and I installed the dryers that come, these industrial dryers, and when they came in I couldn't set them upright. Like I couldn't install them because I hadn't done the math on the roof clearance. So it was like, I remember it was winter, so I ripped the roof off and I ran the whole laundry. I mean, I hope no one from whatever town that was in is hearing this podcast, but I ran this laundry with no roof for the better part of two months. I remember it was snowing and raining and we just ran this place and getting more customers and then we bought our largest competitor out of bankruptcy and we just had this kind of thing and we grew that business to 40 million in revenues from zero 600 something employees. Just utter an awesome chaos every day. In the span of eight or nine.
[00:18:53] Speaker B: Years that you just mentioned, you bought your largest competitor out of bankruptcy. Tell us a little bit about that.
[00:19:00] Speaker C: Yeah, so again, I've never had the fortune or problem of having worked for anyone other than Uncle Sam, so I'm very comfortable being honest about what I don't know. And I remember my lawyer called me and said, hey, this laundry company just filed for bankruptcy. Do you want to buy them? And I said, yeah, but they're bankrupt, so do we just get the business? And he's like, well, no, you have to go through this process. And chapter eleven, they might do a seven. And I didn't know what any of these things meant. I was like, when can I get the keys? Like when can I start? And he's like, well, no, we have to go through a process, it's public. And he's like, why don't we put a stalking horse bid? And I was like, what does horses have to do with this? They had no idea what he was talking about. And that was really my first exposure to doing something pretty meaningful. And we did place a stalking horse bid. We did fight off a lot of other potential buyers. We were in court an awful lot. We ended up fighting the business founders who found their own backing and put in a competing bid. I had to learn how to convince existing lenders to not credit bid against me or even what a credit bid was. And it took us six months. But that was the rocket fuel that helped us grow our business and kind of put us on the map. We were top five.
[00:20:16] Speaker B: Did you add another facility with the acquisition there? Did you add another facility?
[00:20:21] Speaker C: Yeah, we added our biggest facility. So the company that we acquired out of bankruptcy, both from a footprint and revenue standpoint, was probably about double our size. And they had been around forever. I mean, they were like 100 year old company. So it wasn't an easy fight. The family that owned it, they didn't want to lose it. But it seemed really like looking back, I'm just listening to myself talk right now, wondering what the hell was I thinking? But at the time it seemed like a perfectly rational thing to do.
[00:20:49] Speaker B: And now when you look back on it, what makes it so irrational? Or what are the things like when you look back, what did you not know?
[00:20:57] Speaker C: I mean, that's kind of the story now, right? And you and I have talked about this a little bit, Peter, but just generally speaking, when I talk to other entrepreneurs is just try and remove the complexity out of your life. And it was just really was. I'm not sure I needed if I was just a little bit more know that business becayed for a reason, that facility becayed for a reason. And I've been more patient, a little bit more thoughtful, a little bit more careful for the purpose of making things easier, knowing that things are already going to be hard enough. I think Warren Buffett has a great saying where he know, I don't try and jump over nine foot poles, I look for 1ft poles that I can step over. And stepping over poles is hard and business is hard, laundry is freaking hard. And I think I didn't do myself any favors in trying to make it easier along the way.
[00:21:42] Speaker B: Your next sort of big transaction milestone comes after acquiring this business out of bankruptcy. If I understand the chronology correctly, somehow you begin to catch the eye of a number of either investment firms or private equity firms or investment bankers. Maybe that was because you began to get some press on the business and as a top employer or as an up and coming entrepreneur, not exactly sure how you began to sort of get on the radar of this whole world of m a. And bankers and private equity. But it happens. Right? And so let's get into that. Let's get into that. Tell us a little bit about the transaction that you did there, the nature of the transaction, the reason at the time for doing the transaction, and then we'll keep going from there.
[00:22:28] Speaker C: Yeah, well, look, I was 28, 29 years old, feeling really good about myself. With this big company and hundreds of employees. Everyone's telling me how awesome I am.
[00:22:37] Speaker B: It's a pretty big business at this point, too.
[00:22:39] Speaker C: Yeah, I'm giving myself a lot of pats on the back, and I'm going to a lot of fancy galas and parties and being invited to things I was invited to before as a combat infreach man with his degree in philosophy. And it was cool. It was awesome. So invariably, I met a lot of Wall street people who liked hanging out with me, and I enjoyed hanging out with them, and I don't hang out with a lot of them anymore because I think, no offense to Wall street people, but there's not a lot of connection there. When I talk about my day and they talk about their day, there's not a lot of overlap for us to have a drink on. But I met investment bankers, and I was like, wow, cool. So you guys, basically, your job is to fly around America and meet other bank companies and just put them together with rich people that want to buy them. And then you get a fee of six to 8%. That's incredible. And again, no offense to Wall street guys, but they're like, yeah, dude, I closed a billion dollar deal last year.
I got so caught up in it that I forgot about what I was doing. Right. I was running this company with hundreds of people. Like real human beings, not ftes, right. I still try to not get swept up in thinking of my business as a widget, which is so stupid. I think I just try to be really specific when I talk about my company and my people. I went down this process, met really fancy people. I went to a lot of fancy parties, played at fancy golf courses, and I did a deal that I was not ready for. I did a deal. I took a ton of money. I took a lot of money off the table. I sold majority control, had no idea what that was, gave everyone a lot of high fives, and then thought I still owned my company, and I didn't.
[00:24:27] Speaker B: And your plan, as part of this saying, was to take some money off the table, you'd build something more or less out of nothing with your father and your mother, and then you obviously leading the charge at some point, moving more and more into the commercial laundry side of things. And the plan was to take some money off the table, but also to continue to grow the business and to be its long term chief executive. Right. I mean, you weren't selling out. You were taking some off the table, rolling the rest into the deal, and looking to hit the next set of major growth milestones.
[00:25:02] Speaker C: Yeah, exactly.
[00:25:03] Speaker B: Right?
[00:25:04] Speaker C: Yeah. I had this whole ppm or offering memo, or whatever it's called, that had this whole vision of building five more laundries. I didn't have a plan for that. It was just words on a piece of paper. I had really good bankers. I guess I should say that I had really, really good bankers. And I just wasn't ready for the responsibility for the covenants, for the oversight. And I blame myself. I don't have any ill will towards anyone in that process.
I ultimately signed all those documents. But it was an incredible experience. I mean, it was an incredible experience to see the types of resources that money could buy. That experience could buy. They brought in some excellent people. The CFO, they brought in, who I'm still close with to this day, came to my wedding. They really opened my eyes to all the things that I had done wrong. The problem is, they were opening my eyes to it while I no longer owned it.
[00:26:04] Speaker B: Sang, when you look back on this chapter, Sang, what do you think you principally did wrong? Was it the way that the transaction was structured? I mean, the fact that they own the business doesn't. I mean, that may have been right, or it may have been wrong from your perspective, but to me, that doesn't seem like. That just seems like a decision. And you can either retain ownership or they can have ownership, but when you look back on it, what do you think you really feel like you got wrong in terms of the structure of the transaction? Was it?
[00:26:30] Speaker C: Yeah.
When I read a lot about venture investors, right, they take venture companies, they take like, $100 million, and they have this crazy burn rate, and then they just expect that more money will come. That's kind of what I had assumed. Right? And I don't think I didn't have a really good plan for x. Millions of dollars comes into my company, and here's the exact capital deployment plan. Here's what I'm spending on equipment, here's what I'm spending on people. Here's how I'm going to upgrade my staff. I didn't think about any of that. It was just money's in, plug all the holes, business as usual. Oh, what do you mean we have to pay all this debt?
What's a Mez loan? Little tongue in cheek, but not really. I didn't understand. I didn't take the time to really consider all the changes that this money was bringing in. And I think if you're going to bring in private equity money, I can't speak for venture, but if you're going to bring in private equity capital, I would have read those documents a little bit more closely and I probably would have picked a different, different firm that was more equity focused versus credit focused. And there's no way that I would have even known, while I was so busy congratulating myself what that difference was when I was 29 years old, golfing at all these fancy places.
[00:27:44] Speaker B: When you talk about covenants and your lack of readiness for the covenants, are you talking about debt related covenants or are you talking about other covenants or performance related debt?
[00:27:54] Speaker C: Performance, yeah.
[00:27:55] Speaker B: Okay. And was there any sort of adverse developments in the business that made those covenants more out of reach or was it just sort of normal course of business and the covenants nonetheless were not in the right place?
[00:28:10] Speaker C: Yeah, there was a pretty significant event. Hurricane Sandy. 6ft of water kind of came through our laundry facility, which was devastating. You can imagine 6ft of water in any business, certainly one with as much electronics and motors and systems as we had. So that was kind of the start of things going bad and we didn't have any redundancy, lost a ton of customers, didn't have the right risk management in place, insurance in place.
But I don't want to blame that. That was just the fire starter. The logs and the twigs were all sitting there ready to be lit.
[00:28:44] Speaker B: And so Hurricane Sandy, that was what, 2012?
[00:28:47] Speaker C: That was 2012, yeah, 2012.
[00:28:48] Speaker B: And when did you do the transaction?
[00:28:50] Speaker C: Roughly 2011.
[00:28:52] Speaker B: Okay. And your last day was December 31. You were telling me before we pushed record, that was somewhat mutually agreed to. Somewhat. Not mutually agreed to, yeah. You wound down on December 31 of 2012 or was that the following year?
[00:29:07] Speaker C: Yes, it was 2012.
[00:29:09] Speaker B: And you took a big cooling off period then, right?
[00:29:11] Speaker C: Yeah.
[00:29:13] Speaker B: When you look back at that chapter now, what do you say to entrepreneurs now about what you learned through that chapter? What were the big takeaways? What are the big learnings from all the growth, all the success, a ton of hard work. You did a lot of things right. You probably moved your business into the commercial category and away from retail. That sounds like probably a pretty reasonable decision, particularly if you wanted to scale. It's not like it was nothing. It wasn't like it was all disaster and bad decisions all along the way. It sounds like there were some really good decisions and a lot of good hard work, but obviously also some really tough lessons learned, like, how do you size that chapter?
[00:29:45] Speaker C: Until recently, I hadn't. I kind of just moved on and I spent some time back at my company after I got fired or quit or whatever it is. I learned so much from that. I don't look back at that time with a lot of negativity anymore. I feel like I've learned a lot from raising money from an institutional investor and then living by their rules was foundationally important to how I think about running my business now, and importantly, how I think about where my business might be in five, 6710 years. So, like decisions that I'm making today, I'm thinking about the private equity investor that might buy us in seven years. And I'm thinking about how we're structuring our operations and the team that we have in place with that in mind, with the expectation that that level of professionalism and structure is going to be a requirement to harvest a good multiple, a good value. And it's changed how I analyze my business. I never built models. I never thought about ROI analysis. Everything was very shoot from the hip. And I think taking the time to model things and do things a little bit slower, removing complexity, which I think is how I use models not to drive strategy, but to just maybe help formulate a clearer picture of what I want to achieve and then make a decision that's still very much, I think I'm trying to keep that emotional, the emotional gut and collaborative with my team vision of what I think we should do. But the way in which I analyze the business and the way in which I think about what a future buyer like the guys that invested in my last business would want, those are things that I think about almost daily.
[00:31:44] Speaker B: And how has that manifested in the way that you think about the business? Because I've heard people think about, I've heard that before, and I wonder sometimes whether or not it creates the wrong kind of paranoia or whether it's really, really helpful. So I'd love to hear you talk a little bit about the specifics of that. When you're thinking about the end and working backwards from the end, where the end is potentially the sale of the business to a corporate buyer or to a sophisticated and rigorous private equity buyer, it sounds like you use that model a lot to think about things and work backwards from things. What's the most productive way that you sort of use that mental model?
Where does it show up in the way that you run the company?
[00:32:24] Speaker C: I think the best way is just the data management.
Is my business set up in such a way where this is just one example, but a very important one for me, is my business set up in such a way where I can, through one PDF or one portal, see a dashboard, see a set of metrics that have a high level of accuracy to reality that can tell me something about what just happened and what might happen in the future and happens without a lot of human interaction. And this dashboard or this tool, this ERP or whatever system you're using. We're using all those things, but the ability to make those decisions and to see those trends quickly is, I think, what private equity companies are really trying to do through how they organize their data. And organize, more often than not, the first replacement or the first hire they make is a really good CFO. And that has enabled us. That lesson that I learned from my time being owned by a PE shop has allowed me to make really, really smart decisions that I'm not sure would have been so obvious to me and certainly wouldn't be so. And I'm someone who's done laundry, as my dad would say, since I'm like five years old. But a lot of decisions I made with equipment or with how I utilize labor or certain debt deals we've made, I mean, the list goes on and on, but transportation costs, I think our ability to analyze our data really, really quickly and know that it's not wrong has been a big part of what I learned from my last company. But also what we want to incorporate more of as we work towards wherever cooperative laundry is going to be in five or seven years.
[00:34:12] Speaker B: And what's gone into that level of, what have you had to do in order to have that level of data access, data management, data visibility, just the observability of all of that data. What have been the investments that you've made to do that? Where do those investments take form and take shape? Just tell us, what have you done in order to be able to have those dashboards and that tooling today? How does that contrast with what you had when you were running prestige? The chapter one business?
[00:34:41] Speaker C: Well, the chapter one business, we just had Quickbooks and Microsoft Excel. And, you know, I've kind of required across the board at my company that minimally, you guys all need, all my senior managers, you guys all need to know Excel as well, if not better than I do. And people I've seen, I think my Excel skills are like c plus at best. Some people think I'm a plus and it varies wildly. But if you can't work your way through multiple four or five point and statement in an if then equation in Excel, then you're going to get lost pretty quickly in whatever project we're working on. So if you're trying to integrate Salesforce, if customers select this on a survey, then whatever, then you're going to get lost pretty quickly. So I think from a basic level, the first thing that we did was we made sure everyone wanted to get on the same page, that everyone thought this was important. And if you're not, that's okay. I'll write you a really nice recommendation letter and you can go work somewhere else. The first thing is just everyone believing that these dashboards are important, everyone believing that these dashboards and reports are, it's paramount that they're accurate and understands where all this data is coming from and where it needs to go. So we integrate to an ERP system. We have a floor management software for our actual operations. We use salesforce.com for our customer side CRM, and we tie all those through a series of automated and semi automated reports that get pushed out daily to everyone. And that's the other thing too. I think it's really important is the level of transparency that we have with our information I think is unusual. It was certainly unusual for me relative to my last business, like as a mom and pop, I really guarded those things pretty closely. So nobody really knew if we had a bad day or if we had a good day. I think the really bad days were obvious and the really good days were probably obvious too. But those little small incremental improvements we could have made, nothing gets me more excited when a transportation manager calls me and says, hey, I noticed that if we send this delivery out 4 hours earlier, the average delivery time is 45 minutes shorter. So I'm going to call the customer, I'm going to get with service and change the customer's delivery time to 4 hours before what it is right now. That's amazing, right? And 45 minutes of delivery times a driver that makes whatever, 28, $30 an hour plus his helper, plus fuel, plus extra time. I mean, you're talking over the course of a year, tens of thousands of dollars in savings multiplied by a host of thousands of other examples like that. And that obsession, which is what it needs to be, that ruthless obsession. It needs to be from the whole team. I, as the owner, need to be providing the resources. I, as the owner, need to be providing the capacity. My senior managers need to be providing the same things, plus access for questions, vision for how this is going to play out. And then middle managers and operators need to be executing those things, and it needs to be happening flawlessly. Otherwise it's just, and the really scary thing about that is if any one of those parts breaks down, the data just becomes garbage, which is the most dangerous thing that could happen.
[00:37:53] Speaker B: Do you think that that's one of the key advantages that you have at cooperative laundry, just that level of capability relative to, I mean, there's a lot of mom and pop operators. I wouldn't think that a lot of them are operating with that as one of their top priorities and executing it with the benefit of a really hard set of war stories that you have from your time running prestige. I would think that would be one of the sources of real advantage for you guys.
[00:38:18] Speaker C: Yeah, I think so, too.
I've met a lot of mom and pop operators, a lot of korean american mom and pop operators. They actually do it pretty well. They might not be doing it in Oracle, but they know their business really well. Like, if you go to a deli operator in New York City and say like, hey, how much did you pay for eggs? They know their numbers. They're like, oh yeah, we bought 400 dozen of eggs last year, last week, and we threw out 22 dozen, so we're buying 300. They know their numbers at scaring degree. Some of the entrepreneurs that scare me are like the really smart ones that haven't run anything before. They scare me. I worry for them because they don't know their business. They don't know the numbers, and they don't know their process of even getting the numbers or the processes that cause the numbers to be the output. And I think that getting comfortable with your numbers and with your economics and with your data in a way where it's like your operating language, when you're talking to your colleagues and you're talking about the same thing every single day and you know the trends like the back of your hand better than the back of your hand, then that leads to a really natural desire to make things better. It's easier, it's less complicated, less complexity is a theme for us, and that's what we focus on. And the thing that frustrates me about when I think about prestige a little bit is I could have done that back then. I could have upgraded the systems, might not be what we have right now, but I definitely could have done it back then, and I think what frustrates me about it now is that there are endless number of systems that you can commit to that are really affordable, relatively speaking. And I just really believe in data and really believe in trend analysis and that that's how you can make things better really quickly.
[00:40:08] Speaker B: I'd love to talk about just leadership a little bit and like leadership for you over this ten to 15 year period, when you try and close your eyes and think back to the way you were running prestige and think about the way that you're now running cooperative laundry, what do you think are the biggest changes that you've made to just how you think about your role as the leader? What are some big changes in just the way you practice leadership within the company? What's changed? What stayed the same across the two chapters?
[00:40:41] Speaker C: Yeah, I've read all the books. There's the delivering happiness kind of everything's know ant book, and then there's the extreme ownership navy seal like book. And I think my change has been one of thinking that I'm so awesome that I can do everything and I can control every outcome. I just have to work a little bit longer or work a little bit harder. First to trusting people, trying to trust people and not trusting people per se, but coming to an understanding with my team that x, y and z is important and as long as x, y and z are happening, then leave them alone. And the one liner I like to call is no surprises. I think surprises are just deadly for any business, but really in mine. So we had a lot of surprises. In my first company. Every day was a unique and exciting day in the worst possible way you can imagine. But now it's, hey, we have the same business, we have the same customers, we operate in the same facility. We basically have the same people. We work operate the same hours. We charge the same price.
How do we make this more repetitive? And how do we make this really, really boring? I never made money when I was really busy. Money was made when things were running well and I was sitting at home with nothing to do. And I think that that's my job. My job is to get everyone what they need and get the hell out of their way.
[00:42:13] Speaker B: Who do you feel like you've learned the most from over the chapters? I mean, you think about just your bias for simplicity, the way you think about, and the way you just answered the leadership question. Where have you learned these things from? Have you learned these from your mistakes? Have you learned these from other people. Who have you learned from, who's been influencing you along the way?
[00:42:32] Speaker C: Yeah, I've learned from other entrepreneurs, have a host of. Well, first, there's a bunch of things, and I should say this because other entrepreneurs are listening, ypo or something like that. Do that if you're young, if you're under, I think it's 50 or whatever the cut off is. YPO. I think there's something called, like, envisage or something like that, whatever those are. Get yourself once a month in front of other business owners and just hash it out, be honest and enjoy it. And I was in YPO probably for, I don't know, four or five years, and it was incredible. So certainly folks at YPO, other fellow entrepreneurs that are good friends of mine, who are really smart, running similar type of businesses, not laundry, but like a warehousing business or a cookie business, they sell retail, cookies, all kinds of other entrepreneurs can really shed light on. And if they're friendly with you, I find a lot of them to be just painfully honest, which is nice. And customers, I have maybe like a half dozen customers that I still keep in touch with pretty regularly. And they've been great to understand where I have stumbled, where I've gotten better. They've been with me at my last company than with my company now. And I think some combination of all those networks have led me to obsess over simplicity, really focus on execution, but all within the framework of some very well defined mission. So we're KPI hunting at all times, right? And I don't know. It works for me now, maybe that'll all change. But for now, we are just really focused on keeping things simple, because that's what I think the Elon Musk's of the world are doing when he's building out his gigafactories. Not that he's someone I necessarily want to emulate for other reasons, but I think when you listen to him talk about what he went through building his first factory and how he removed automation, or how he thought about the cost of labor, or how he thought about his energy consumption or any aspect of his business, what I think you see is someone trying to make things as simple as possible so that they can focus on selling cars. But, yeah, I mean, that's my take. That's what I think Steve Jobs was doing when he got rid of 90% of the Apple product line when he first came back. How does that make you think about.
[00:45:03] Speaker B: M and A for cooperative laundry? Does m a just look like a source of complexity or is there a version of M A?
[00:45:10] Speaker C: Yeah, I got my hands full. It would have to be. We're not going to force anything. I'm not going to grow just for the sake of growing. I think that M A needs to be. We're not in the business of M A. Right. We're in the business of doing laundry. So if an M A transaction makes the business of doing laundry, I would absolutely consider it. But if it's just to make it bigger, that's not a good reason.
[00:45:33] Speaker B: I think that's a great place to leave it. Better, not bigger.
[00:45:36] Speaker C: Yeah.
[00:45:37] Speaker B: Saying thank you so much. Learned a ton. Really enjoyed it. Really, really fantastic and very honest conversation. Thank you so much.
[00:45:45] Speaker C: Thanks for having me, Peter. Appreciate it. Enjoyed it.
[00:45:52] 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 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 sellside M A advisor, you can get started for
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[00:46:30] Speaker B: Thanks for listening.
