Paul Giannamore: In our business, what I've always made sure that we do to protect, number one, my clients but also protect us is there's always a process by which we have to live by.
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Paul Giannamore: Seth Garber, it’s you and I today. Fat Pat is away.
Seth Garber: This could get very interesting, Paul, without the fat guy here.
Paul Giannamore: Fat Pat takes a lot of holidays for an accounting entrepreneur, would you say?
Seth Garber: I'm glad we're partners because I don't take a lot of time off. When I was down in Costa Rica, I was keeping my eye on the ball and looking for deals.
Paul Giannamore: Somebody's got to carry the torch over there in FRAXNville. Seth, we've had a lot of great guests on The Buzz over the years and we haven't had a whole lot of guests lately and it's time to start doing that again. I haven't had time, a lot of travel, and Fat Pat's always on vacation, so we haven't had him rustling the bushes for guests. It's you and I today. Before we went on, you mentioned you had solicited some questions. You did this in your Pest Daily portal of some sort. How'd you do this?
Seth Garber: We did it within Growth Group, it's one of our moderated groups on Facebook. People were pretty excited about the fact that we were going to ask you some random questions, Paul.
Paul Giannamore: Let's ask some random questions to me and then maybe I'll ask some random questions to you and we'll see how this goes.
Seth Garber: We'll start with an easy one. Because there are a lot of neat people that love to follow The Buzz, we'll start with this one. This one might be a little difficult. This is from our good friend, Cassie. We all know Cassie, one of our favorite people. Cassie asked probably the tough question. I'll go ahead and ask you. Paul, who approved Fat Pat's time off?
Paul Giannamore: That's a good question, I'm going to have to kick that back to you because I don't have any operational control over Fat Pat. Fat Pat, of course, is a co-host of The Buzz but that's not a business. He's a partner at FRAXN though so that's a good question. Did he file for leave?
Seth Garber: I'm going to have to talk to HR. Give me a second. “Hello, Seth?” “Yes?” “Did Patrick file for time off?” “He didn't.” We'll have to write him up when he gets back, Paul.
Paul Giannamore: A letter in the file. That was easy. Case closed.
Seth Garber: That was a good one. Let's dive in. We've got a great question here and this one came from a friend of mine, Chris Moreschi. You probably know him over at Gorilla Desk. Chris asked a question that hits home with a big audience. Chris said, “Paul, what should companies at $1 million in revenue be thinking about if they want to continue to scale toward the biggest possible exit?” It's a big, broad question. It's pretty interesting.
Paul Giannamore: That's akin to asking, how do you turn a small pest control business into Rollins? It's a multifaceted, complex question. One of the things that we've talked about quite a bit on The Buzz is the counterintuitive nature of keeping the business in a tight geography. When people want to grow, they sometimes think the geographic area in which they operate equates to how big and manly their business is, and that's not always the case. Smaller is a good practice. Stick to your knitting. If you're a commercial operation, focus on commercial. If you have residential capabilities, probably focus on that.
For smaller firms, it's more difficult, at least in my experience, doing both well. Over time, you can probably develop those capabilities. If you're a million-dollar pest control business and you're focused on the residential market, you might say, “I can hire a commercial sales guy or two and send them out and start doing commercial.” It is a different business and it can create some opportunity cost cause now you're fighting a war on two fronts. Focus is important for the small operator. Seth, what would you add to that?
Seth Garber: It's been a long time ago but we were on the Buzz. I forget exactly what the question was around but you had made a comment about it didn't make a difference as long as somebody ran a fundamentally strong business. As these companies start to scale up and they want to get larger and larger, it's a lot easier. I don't want to speak for you but for you to look at a company that's a fundamentally incredibly strong business versus one that's growing fast, it makes it a lot easier to exit.
I'll use an example that I talked about with one of our clients. One of the clients that I work with is a larger company and they want to have what I call the easy discussion, which is, “How big are we from a revenue standpoint? How fast are we growing?” In the same discussion, one of their operating partners came back and said, “We're not making any money. We can't get the resources we need to continue to take on debt and so on and so forth.”
I asked them a simple question. This company is $4 million and they want to open an operation and try to grow another $4 million business in another state. I said, “If you're worried about profit,” which they are, “What is more important to you? Is it more important to you to have a million-dollar company that you're making $200,000 to $250,000 a year in your first year or is it more important for us to go build a $4 million company that's sitting with $1.5 million in debt in your first year?” We’re talking about eighteen months.
It made them take a step back because they're used to having a big discussion about how big we are and how big our revenue is. They're forgetting to talk about what the bottom line looks like. From my perspective, I like companies to think about what's important to them as an owner, what they think the best lifestyle is for them, and then to keep that end in mind. If that end in mind is a 5-year plan, a 10-year plan, or a 20-year plan, they stay focused on that.
Paul Giannamore: You raise a couple of good points. If you take a spectrum and you say on one end of the spectrum, let's use a $5 million in revenue pest control business. Let's say that you're growing it at GDB plus but you're still able to run a 20% EBITDA margin. You've got a $5 million business and you're making $1 million a year.
On the other end of the spectrum, you've got that same $5 million in revenue pest control business but you're growing at maybe 25% per annum. Instead of kicking off 20% or $1 million bucks a year, it might be kicking off $50,000. If you're a business owner or an investor, you get your returns from owning a business in 1 of 2 ways, either through dividends or capital appreciation. You're either taking money out on a monthly, quarterly, or annual basis, or you might be reinvesting all of that cash into a business, compounding that capital, and ultimately getting your return when you exit it.
A couple of things we've talked about on The Buzz before are some problems that we have when if you're a sole shareholder in a business, you know how much money you have in the bank, and you know what resources you have. Some people can say, “I'm going to reinvest everything back into this business. I'm not going to take much out of it. I'm going to build the capital base.” Other folks may need to put food on the table.
Our buddy, Fat Pat, when I first met him, he came to me and it was he and Bobby with 855Bugs, and there was a third party, an attorney who wanted to invest in the business. The dilemma of different shareholder goals and objectives was immediately clear and evident to me when this individual wanted to invest in a pest control business and collect a coupon on a monthly basis, whereas Fat Pat and Bobby wanted to reinvest capital in the business and grow it.
Shareholder goals and objectives, of course, are number one, and those are overarching, and there needs to be alignment between shareholders. If you have a lot of partners in pest control, particularly on the door-to-door side, we'll have different risk tolerances and different desirability to own a growth company versus a cashflow company. That's number one.
Number two, a lot of folks that have grown up over the years with regard to making investments and owning pest control businesses, the majority of folks who are in the age of 20 to 45, give or take, have lived in an era where governments around the world have distorted the price of time. What I mean by that is when you think about an interest rate, it is not the price of money, it's the price of time.
It changes time preferences for humans, meaning when the cost of debt capital is negative or at zero, high-growth businesses tend to be worth substantially more in the present. Effectively, zero-yield polls return from the future into the present. As yields begin to rise, we see the valuation calculus changing now.
Higher-growth business is a business that's not producing a lot of cashflow now but promises to produce in the future like Uber, for example. In a negative yield territory, those businesses are worth a tremendous amount of money in the present, but as yields rise, that pushes those returns back out into the future, and valuations fall down. Now there is a high preference for the immediacy of cashflow and we're starting to see that in the market.
I went into a long tale about time preference and the price of time but at the end of the day, shareholder goals and objectives, you got to determine what it is you want to do. Seth, you deal with a lot of smaller companies than I do but I would imagine when you look around town and you see a lot of these million-dollar businesses, these are guys that I would imagine have to put food on the table for their family. They can't afford to invest everything back into the business.
Seth Garber: It is the case. In our consulting practice, we run with companies that are $1 million to $50 million. we see it all and we see all these ups and downs and the emotional component and people who are running $1 million businesses and they're making $50,000 because they're putting all the money back into the company for growth. One of the biggest discussions we have is exactly that. How do I pull more money outta the company or do I not pull more money out of the company and I go another year where I'm at? That's a discussion we have all the time. It's not an every-week but an every-month discussion with companies. It's an interesting thing, for sure.
Paul Giannamore: One of the things from an intellectual perspective that makes me scratch my head and wonder how this is all going to turn out is if I think back from the great financial crisis until today, we've had ever-decreasing yields. Owners of assets around the world were rewarded for reinvesting, basically foregoing current income and reinvesting it in the business to build a larger capital asset because the transaction multiples are super high.
Now that we find ourselves in an era where that is now in reverse, I have to wonder if the exact opposite will happen where folks will end up investing more into a business that ultimately is decreasing in value not only from a valuation multiple perspectives but also from an earnings perspective. We won't know that until it plays out because I've yet to live through this.
If I use standard deductive logic, that's likely to be the case. Everyone was rewarded for the arbitrage play. Everyone was rewarded with having the $5 million business and going out and buying the $1 million business and buying it for 1X and turning around and selling it for 4X or going out and spending money on advertising and being able to acquire those accounts and then turn around and sell for more. I got to wonder what happens when things kick into reverse.
Seth Garber: I can even tell you as I think about our personal strategy in my life, it is something that we're thinking about a lot because if we use our industry where we've seen some valuations go down, we're watching our clients buy smaller companies like crazy. In three weeks, our clients have closed on sub-million dollar companies. They've gotten 9 or 10 of them in good deals. If we would've compared that to what it would've been a couple of years ago, the deals are cheap, the ones that we're seeing. I agree with you.
Paul Giannamore: We'll see how this plays out.
Seth Garber: You're thinking about this now, aren't you? I can see you’re thinking about your own portfolio, Paul.
Paul Giannamore: I’m constantly thinking about this sort of stuff.
Seth Garber: I'll ask another question for you. One of our other buddies, Kyle, sent over this question. He said, “Ask Paul at what point does EBITDA affect when valuation multiples increase? For instance, a $1 million pest control company, 90% recurring equals $200,000 EBITDA versus a $10 million pest control business, 90% recurring, and $2 million EBITDA.” I feel like that's a little bit of a loaded question so we'll see.
Paul Giannamore: I don't know if it's still online. It was before Bubble Trouble, maybe it was Supernova, or maybe it was Aftermath. I don't remember. It might be on Potomac TV still where I talked extensively about multiple expansions. The theory here is when you think about roll-ups in any sort of industry, whether it's lawn care, pest control, IT staffing, or you name it. When institutional money comes in and backs some sort of platform and they go out and buy smaller businesses, allow me to use round numbers, a $1 million in EBITDA business versus a $5 million in EBITDA business.
When I use the word EBITDA, I'm talking about effectively what falls to the bottom line for our argument's sake here. $1 million, $5 million, $10 million, and then you got Rollins with hundreds of millions. The theory is that the larger or the higher the EBITDA is, the more resources and capabilities the firm has, the more stable it is, the less risky, and so on and so forth. That stream of cashflow should be valued at a lower discount rate or therefore a higher multiple.
Interestingly enough, when you look at the pest control industry over time, one thing that I've always struggled with since I got into this space back in 2003 is there's not a tremendous amount of multiple expansion as you go from the small end of the industry all the way up to the top end. It does exist but it's not nearly the same multiple expansion or multiples getting larger as cashflow grows that you would see in a lot of other industries. There's a variety of reasons for that.
In the early 2000s, larger pest control companies were tremendously undervalued not only by the capital markets and the public markets but also by the strategic acquirers out there that were largely limited. Over time, as acquisition activity has increased and competition increased, we've definitely seen multiple expansions. It was almost non-existent prior to the great financial crisis. It wasn't until around 2010 or ‘11 that we saw larger businesses being valued on a higher multiple basis.
When we got to the end of 2020, we saw a lot of multiple expansions disappear. Where there are no multiple expansions in a market, I view it as an unhealthy market. 2020 and 2021 were extremely healthy for my pocket but it's not healthy for a functioning private capital market in my perspective. We want to see larger businesses getting a higher valuation than smaller businesses. One of the things that we constantly look at here, and we've done this over the years, is understanding the level of multiple expansions within the industry helps me understand how healthy the market is.
I would say we've seen multiple expansions increase since the end of 2021 into today. Now we see a healthy level of multiple expansion businesses that have roughly $5 million in EBITDA, even to this very day, are selling at 5X revenue, give or take. Companies that have substantially lower are selling at 10, 12, or 13 times EBITDA and sometimes 2, 3, or 4X. We're seeing healthy multiple expansions. What that demonstrates to me is the speculative frenzy has dramatically slowed down and we have more of an orderly, normal market right now in the present.
Seth Garber: It makes a lot of sense. One of the things that constantly happens in our industry, Paul, and I know it's the same question you get asked all the time, is everybody wants to know what their company's worth. They immediately want to know how many times revenue or how many times EBITDA and they immediately want to know. They think it's easy.
Something that might help some of the people who may be reading this episode would be to hear from you about some of the other complexities that potentially come into some of these valuations in the ways that maybe you think about it without giving away some of the secret sauce that you guys do. People need to think about their businesses in different ways.
What else would you recommend to an organization that can help here and help them get higher values? Is there anything you think about at the top of your head or things that you look at at a business and you go, “These couple of things can greatly impact what this company could sell for outside of EBITDA.”
Paul Giannamore: It's most dangerous for a guy like me to talk about valuation more so than even an owner because I do this every single day, and I probably do it more than anyone else on the planet. People listen to what I have to say so I always have to be careful. One of the overarching problems that sellers have that I talk to is they get excited when they start thinking about selling their business and they're thinking about all the money they're going to get and then valuations. They talk about EBITDA multiples, cashflow, this, that, or the other.
We can use a little bit of arithmetic and come up with a range but valuation always is a range concept. It's easy to use what you believe to be comparables in the market and dramatically undercut yourself because you haven't gotten full-price discovery. A lot of that stems from the Dunning-Kruger effect and not knowing what you don't know but having far more overconfidence that you know what you're doing. I'm constantly guarding against that myself.
In our business, what I've always made sure that we do to protect, number one, my clients but also protect us and make sure that we're always doing the right thing is there's always a process by which we have to live by. There have to be specific tangible reasons why we would violate the process because the process exists for a reason. With auction theory and having done this for over two decades, I can see how it plays out.
I've said this 50 times on the show, you give me a client and tell me to run a process on a pest control business, for example, and then ask me, “Who would the likely buyer be?” You would probably make money taking the opposite side of that bet. Less than 50% of the time, I am correct. People ask me that. I'll tell you this for grins but at the end of the day, I have zero idea. We closed four transactions and all four of them were financial sponsor deals and three of them were platforms.
When you've got dozens and dozens of private equity firms in the race, I had zero idea any of these buyers would be the ones who ultimately prevailed. By the way, I was shocked at the valuations of all of them. They all blew past what I would've thought. If I don't know who the buyers are going to be and I don't know what the upper end of the valuation range is, you got to sit back and think, “What is it that you know that I don't know?”
I'm not saying that to be an arrogant jerk, I'm saying this is my job, I do this 12 hours a day, and 7 days a week, and I've been doing it for over 20 years. If I don't know this, then you have to stop and check yourself. I can get on the air right now and admit that I am extremely ignorant of who the likely buyer is and what the likely purchase price is. I can probably get closer than you can but I never know until the market speaks and I got to make sure that I caress it right and run the process right and see what the market can do.
We've talked ad nauseum about this over the years on The Buzz but it's simple if business owners can sit back and say, “What creates value in a recurring revenue business?” It's recurring revenue. If you can sit back and say, “How is it that I can build a recurring revenue base and then think about the incentives that exist in your business?”
What's the incentive for your technicians? What's the incentive for your phone staff? Are the incentives set up appropriately to sell and service recurring revenue or are we rewarding for A while hoping for B, which is an academic paper? It's about the perverse incentives. Sitting back and thinking about the incentive structure in your business and how you get that recurring revenue. It’s important to measure to the best of your ability your cancellation rates.
We're in an industry now that is becoming more and more competitive. It's always hard in life to predict the timing of things. The Federal Reserve steps on the interest rate break and starts raising rates and we've got tightening financial conditions. It's impossible due to a lag to determine exactly when that's going to impact the economy. In the same way, it is difficult to determine what impact the institutional money is going to have on this industry because there's a tremendous amount of it rolling in.
Quite frankly, I have these conversations and everyone's like, “Paul, it's super exciting, you've got a lot of hot money rolling into pest control.” When hot money is rolling in, that's when I want to be selling. When all the industry's getting all this loud noise, I want to buy and build businesses that are unloved and unwanted. I want to be the guy that's like, “I can't even believe you're in that shit business. What the hell are you doing? No one wants to be in there. No one wants to buy.” That's where I want to buy because I don't have much competition.
My advertising expenses are relatively low. It concerns me for my friends and colleagues in the industry from a competitive perspective with regard to resources in the industry when a lot of this hot money comes in and that hot money is a lot cheaper than my money, Seth, your money, Fat Pat's money, and everyone reading this. It will create some distortions. I don't know what those are going to be yet.
Seth Garber: Paul, that was a big soliloquy that you gave on there on a nice, simple topic.
Paul Giannamore: Fat Pat knows how to shut me down.
Seth Garber: I wanted you to roll with it. I was letting you go. I want to ask you some questions that are outer space questions and these are coming from me. Are you ready for these?
Paul Giannamore: I love it. Let's do this.
Seth Garber: I don't know if you're going to like these. You might not be able to give me the fancy financial talker on these. Are you ready?
Paul Giannamore: Okay.
Seth Garber: You've never heard this from me before and so these are coming from me. You know my background, I was in the tech world outside of Pest and I was good at monetization of data. In the world today, we're seeing tremendous data collection. In our industry, we're seeing major data collection. Some of the multinationals are collecting millions of data points per minute and they've got different ideas about it.
One of the things that I found that I wanted to ask your thoughts on was this. Is there missed opportunity or missed value in the consumer data that we have in our databases? If I'm a company and I'm acquiring a database outside of cross-sell and upsell and some different things that we deal in, are you seeing a future where these consumer databases become a lot more valuable for companies to acquire?
Paul Giannamore: Let me see if I can break this down. You're saying you got old Fat Pat over there eating his fried chicken and running his Fat Pat's pest control business. What data does he have? He's got the homeowner's contact information, their tendency to acquire pest control services, frequency, and so on and so forth. You're the data guy, what other purposes might that serve?
Seth Garber: There are a lot of data sets that are available today and I'm watching companies get very smart and I'm watching companies, even growing companies, and I say growing companies, sub $5 million, starting to compare their databases against public record, they're starting to pull them in. The interesting thing is I don't hear anybody talking about it. I've looked at some of the CRMs today and we know all the information about the properties, we know a lot about people's buying habits.
There are a lot of different components. There are tools out there that are allowing you to compare the information you have versus databases. I'm seeing people take advantage of it with all kinds of different marketing efforts and all kinds of different things. One of the projects that we have going on right now, which is interesting, is this stuff we don't talk about too much but we're taking subsets of data for our clients and we're developing messaging strategies that are incredibly geolocated related to events that are taking place.
Some of our clients have the buying behaviors of the people that live within their markets. I'll give you an example. I don't know if you guys have talked about this on The Buzz before. The data exists says, “We know who our client is. We know how old that client is. We know that their buying behavior says that they tend to buy at Lululemon or a store like that.”
We now can take that data and we know that from a pest control standpoint, we can send a specific message to them that says, “There's a great local event going on in a market for yoga or whatever it might be. By the way, if you need to have us come take a look at your pest control program or, in this scenario, a mice program, we're happy to come and help you out.”
We're seeing incredible returns on this stuff. People are building these data sets. We're doing it in an okay way for some of our clients. Is there value in the future? If you're going to be an acquirer and you know a company is this sophisticated or companies have this data, does somebody take this data and match it up to what they have and get better? Is there value there like there is in the tech world?
Paul Giannamore: There probably is. If you're able to extrapolate the fact that you've got a customer that pays $600 a year for pest control and they have a propensity to buy lawn care at X rate versus the general population and they have a propensity to spend X amount. Now you can probably create some sort of a data set and impute what those folks are likely to spend on other home services. If you had the data horsepower to be able to process that sort of stuff, it's something I don't imagine a lot of folks are doing and there probably is some value in that.
I have seen some interesting tinkling over the years. We talked about years ago one of these guys was pulling weather data. Now I'm sure this exists off the shelf but pulling weather data in and matching it up to pest patterns and trying to build his own algorithm based on what's going on with relative humidity and temperature and so on and so forth to determine what online ads he should be doing. With these atmospheric conditions, it's this pest versus that pest, and try to get out a day or two before all of the competitors. Anecdotally, it seemed like there was value in that. The acquirers loved it.
Seth Garber: The weather data is interesting. Outside of the pest industry, the last tech company that we built, we toyed around with data feeds and weather data. In ours, we had a good practical application because what we dealt with was commercial real estate properties and tenants and we did a lot of different things. We found that we can notify people based on the weather. In previous years, the weather patterns have been so crazy that if someone had figured this out, it could have been pretty incredible for our industry as a whole.
Paul Giannamore: No doubt.
Seth Garber: Here's my next question. I've never talked about this publicly but I'm going to talk about a thesis that I have. I've never even asked you this question before. When I started designing Pest Daily, I had this thesis and it was the reason why I started. The first reason was we needed this product, the industry needed it.
The second thing and this was my own personal thesis was could I prove the fact that an organization's propensity to learn and even down to the individual could show that there's untapped value inside the business if they wanted to sell that company? A company that we know is going to learn and they're going to do an incredible job and they're full of learners, does that provide additional value to an organization? This is my personal thesis that I can solve at some point in the future but I've never asked you this and so I'm blindsiding you here with this one.
Paul Giannamore: This is something I thought about because I think about the transfer of knowledge within an organization and pest control, most of it is tacit, it's gotten way better over the years. There haven't been formal training and learning programs within organizations. There's some general training, “You're hired,” but most of it is tacit, “Ride along with this guy. Watch what he does. Figure it out. Do it yourself.” The ability of an organization to formalize, rationalize, and harmonize knowledge and transfer that quickly throughout the organization does provide a lot of value.
Back in the day, everyone had a hard copy employee manual and sometimes they had training manuals but it was hard copied. Somebody worked for Western, photocopied theirs, passed it on, and that's how things worked. We had a late CN and they're on internal wikis. Now they're using learning management-type programs in order to do videos similar to what you're doing in Pest Daily. I do think that there is a need for that.
I'll tell you why I think that because I'm often a bystander to most things pest control. I sit in these meetings where two organizations merge. I'm not talking about Orkin going out and buying a $2 million business. I'm talking about the Nomor transaction with ServiceMaster in Europe where it was a large organization and it merged or the Renoktil Terminex transaction, those two companies merged.
I get the opportunity to sit in these meetings and a lot of employees, their focus is not only on career advancement but, “What is the company going to do to invest in me? What are you going to do to allow me to learn and better myself?” It's not just a career advancement, it's also, “How can I educate myself?” There are some competitive advantages there if companies can pull that off correctly.
Seth Garber: It's been something that I've thought about. I wonder when I fast forward or go out ten years from now if I look back and if that company that was sold had this huge internal value that we didn't know about because of this. I don't know if it ever provides value in the industry and I don't know if it ever provides value to anyone of me thinking about it but it's something that I've thought about deeply.
Paul Giannamore: Where are you ultimately going with Pest Daily? I remember talking to you years ago when you were just getting this thing started. What's the latest and greatest?
Seth Garber: With Pest Daily, we have a very long-term plan with it. We've got some unique stuff so we've got close to 75 more courses that are going to be released. We've built a master series of courses that are going to be released. We have a brand new platform that's ready to go, I just have to hit go live. We've built every iOS and Android functionality available and they're ready to go. For me, it's not necessarily about how big of a company I can build with Pest Daily. Our other companies do well.
It's more about, “Can I provide a tool that greatly impacts these organizations to grow? Can we take the things that we're learning all the time from the industry? Can we systematize those and distribute them out to other companies?” That's what we're doing with it. We've got a solid five-year plan with the company. I'm going to own it forever. People always laugh at me but I tell them when I turn 60 years old, which is years from now, I tell everyone I'm going to give it all away. I still think I might do that one day. Some of our good friends think I'm crazy but I think I might do it so we'll see.
Paul Giannamore: Set your clock. Years from now, it'll be free, guys.
Seth Garber: Everything becomes free. You like that, don't you?
Paul Giannamore: That's right.
Seth Garber: Thanks for asking. I never talk about it.
Paul Giannamore: You're running Pest Daily and then you've got your consulting clients and you're dealing with them all over the country. I know that because we have some mutual clients. What are you seeing in general from an operations perspective, revenue, cashflow, customer accounts, and the whole nine yards?
Seth Garber: In the consulting practice, it operates in 80 US markets now. We have things going on in 80 Us markets. I'm a little bit nervous because things are pretty good right now overall. No one's really fighting. When I say no one, there are some but people aren't fighting for growth. We're hitting our numbers. Customer churn has been very low. We're seeing customer churn in some markets sub 1% right now per month, which is great. Those markets, during Covid, were much higher.
I'm seeing markets where you would typically get a high turnover, some of these high service-based markets. I'll give you some examples. We'll use Las Vegas, which is a complicated market. Las Vegas, we're seeing customer churn very low. We're watching growth. I would tell you that if I looked across the portfolio of all the clients we work with outside of maybe a handful, I mean they're all north of 20%, some are 25%, and 30%. Some of these companies are fairly large.
The other thing I'm watching are marketing costs go down, which is pretty interesting. I'm watching the cost per lead go down. The marketing agencies, we work with quite a few of them, are starting to do a really good job. It makes me a little bit nervous because we know we have some type of economic impact coming and business looks good in most markets. If people are operating fairly well, most of the companies are growing now. It's hard to say this. There's always something. That's what I'm seeing, Paul. I'm not seeing a ton of challenges right now. It's been fairly easy getting good team members. It's been a lot easier than it's been in the past, for sure, especially over the last couple of years. It makes me nervous in all honesty.
Paul Giannamore: I'm starting to see softness in certain markets. We do things globally so I'm looking at stuff in the Emirates, Singapore, all throughout Europe, and the United States. Of course, you get into the US and it's like a bunch of different countries because you have these disparate geographic areas. In certain areas of the country, there's a tremendous amount of demand. In other areas, there have been some natural disasters so to speak.
This whole Canadian wildfire business with the smoke and all that, you don't think about it. I'm far away from it. I was shocked to even see the pictures of it. That has had some detrimental effects on some of the US businesses that are up along the border from New York all the way into the mid to central states. Of course, California has had its issues earlier on in the year. The Midwest had a Cold spring. When you have a cold spring, it's hard to make up production. That is going to be interesting to see though. Ultimately, from a consumer demand perspective, everyone's on pins and needles wondering, “Is there a piano above my head right now waiting to fall?”
Seth Garber: I speak from a little bit of an insulated world on this side of the business. I would agree with you, the clients that we work with in the Northeast, did we have a downturn during the fires? Yes. Did we have employee satisfaction go down? Yeah. Everyone operates companies differently and so some of our guys said, “Get out there and work anyway.” Others of our guys said, “It's okay to stay home.” We saw those things.
I work in a pretty insulated place. People we work with tend to be aggressive CEOs or aggressive companies that want to grow fast or have an exit strategy and they need to get to a certain place or the business is in an absolute hot mess and we need to sort it all out. In every one of those scenarios, you have someone who has to win. If I'm in the Midwest right now as an operator and things are nice in status quo and I'm comfortable and I've been growing 5% or 10% every year, those aren't the people that I'm working with personally, they're simply not.
Paul Giannamore: Seth, I know you got Pest Daily and you got a variety of different businesses but on your consulting side, I know you keep it relatively small, and you focus on high-value stuff. When somebody calls you up and says, “Seth, I need to engage your firm for consulting,” what's usually the issue? Why are they calling you?
Seth Garber: It's a broad question, Paul. If you went back to when we started the business in 2017, people understood that we built a fast-growing pest control company. They understood that I was the head of revenue in the tech world and different things and they always wanted to talk about growth. How fast can we build our sales team? You build sales teams, teach us how to build a sales team, or teach us how to grow fast. We're good at that. What's happened over the years that we've been doing this is that there's been so much learning and our capabilities have gotten so much stronger to now we get all kinds of different stuff.
Companies come to us for three main reasons and everything revolves around these three main reasons. The first reason is they want to take an exit at some point in the future. They're working with somebody in the M&A space and they're going, “We're not going to get the value that we want or we're not where we want to be and we need to build the company up and we want to go a little longer and get a bigger value.” Perfect. That’s fine, that makes logical sense. That might be operational work or it might be growing the revenue side, it could be a ton of stuff.
The second group are people that want to go build an organization and they have all kinds of problems within the business now. Problems mean things that they might not even know and they realize they're not performing at the right place. We can go through the entire P&L and identify where these opportunities are and start to slowly fix them. The last ones are hot messes. The hot mess me is, “My business is in a big problem. We have all kinds of things going on.” It could be anything from legal issues, it could be to debt issues, it could be divorce issues between business partners, and all kinds of things but they still want to try to build a company. We get brought all these different things.
The unique part about that business is, and you're aware of this, we don't market that business, we don't talk about the business very frequently, and it's almost referral only. People come to us already ready to make a decision because they understand the reputation and understand what we're doing and know that we get results. The entire time we've ever done this, right now we have 33 active clients, and we've only ever lost 3 since 2017 unless somebody sold their business. People win.
There are two things that I live by that I build the business by. The first is I always say it's never the work that we do because we can't do the job, someone else has to do the work. The second thing I always say is that it's not the ability to pay to work with us. The propensity for a company to perform is what helps a company be successful and it's why companies win, honestly. I don't know if that answers the question. You've been around a lot of our clients and you talk to them. I'd be curious when you ask them what they say and maybe different than what I even think.
Paul Giannamore: When I was at the Power conference, I walked around and talked to different folks and there were a handful of people there. I said, “How did you get involved with Seth? What made you call them, to begin with? What sort of issues did you have?” A lot of these guys didn't have any identifiable issues, they just knew that they could do much better. They weren't sure, like, “Why am I not selling as much? I don't know, maybe I'm doing great. I don't even know. Why aren't I making as much money as I should be with an X million dollar in revenue business?” There's a variety of different things.
Of course, there are some that are dumpster fires. There was one guy in particular, I had known him even before he worked with you. To see him there versus him I knew from a few years ago who was like ragged and beaten, he's like, “Paul, let's go to dinner. Let's do that.” He was super excited and I was happy to see that.
He was a guy who, for years, talked about selling his business. Selling his business for the same reason why I think a lot of people sell their business ultimately is they get burned out, they just don't want to do it anymore. It's not that they own an asset that they're a steward of but they get to enjoy their life. They're toiling in their pest control vineyards. It seems like he's been able to remove himself from that because he spends a lot of time out of state now.
Seth Garber: Things have evolved over the years. I was fortunate that after I sold my pest control business years ago, I went into healthcare consulting. I learned the coaching consulting business and I learned it at a very high level. The part that I hear most because we ask people, “How do you think we're doing? What do you think?” People come to like two conclusions at the highest level. One is, “We're sped up years and years because we don't have to look for answers.” That's something we hear a lot.
The second I hear all the time is, “It's super simple. We essentially pay you to be a part-time executive on our team.” That was interesting because I never thought about that from a positioning standpoint or we never talk about that in the sales process but that's what it comes down to. I want these people to win and I want them to win big. I stay up at night thinking about their businesses. My team is the same. It's not about the money side for me and that makes a big difference and people know that.
It's like when people call Potomac, people call Potomac because they know they're going to get the largest valuation and they know damn well that you're going to go to bat for them. You're going to do that and they know that. They know you're going to care, they know that your team's going to follow up, and there's no question about whether it's going to happen. That's the same thing in that consulting practice that we have.
Paul Giannamore: I have nothing but kudos for you and the team. I'm going to be honest with you, I'll be honest with everyone, I've kicked some clients over to Seth that have peculiar problems. I'm not capable of solving them but you were. Those people are going to exit and, quite frankly, they weren't going to be able to do it beforehand without getting some of this stuff straightened out. A lot of times, what I do and what you do is not particularly brilliant. I think about my YPO form, which is extremely valuable.
We went away on a retreat and I sit down with guys who own billion-dollar businesses. I was talking about one of my businesses that's overseas. You got this strategy in your head and you think like, “I'm going to do this because this makes a lot of sense.” I'm talking about it and they're like, “Why on earth would you do X, Y, and Z?” Somebody else that's smart that's going to slap you upside the head and not be like, “Yes sir. Do what you want to do.” There's value in that for me. The older I get, the more I like to be challenged.
Seth Garber: It's funny, you motivated me, and I didn't tell you about this. Because you talked about the group that you're part of, I joined a group here in Tampa. It's not a paid group, it's a non-formal group that we're part of. My friend invited me to it. The next thing I realized is that I was in a group of twelve people, two of them who you would never know were legitimate billionaires.
Working with these guys as friends has changed my entire perspective. It's not necessarily even about, “Can I grow my company?” It's the way that they think and that they act. The part that I find interesting is it gets me out of my box and if I ask them something, it's like, “I'm sitting with somebody ten times smarter than me.” It's not necessarily financially, it's just that it's crazy.
Paul Giannamore: When I think about things like peer groups in general, this is my own personal experience. There have been some folks in the pest control industry that, years ago, pushed me to get into YPO and one was Emily Thomas, the CEO of Arrow, and the other one was Andrew Klein, Assured Environments. It was Jay Davis and Jason Pananos from BDCI, they sold to Rentokil that big mosquito control business. Those folks all pushed me for years. They're like, “Paul, you gotta do this.” Finally, I did it.
I regretted having not done it years before because no one in my group, in my chapter, or even in the international segments that I'm in is in my line of business. I am sitting down with CEOs of publicly traded companies that have 25,000 employees, that have far bigger issues to deal with with me, and I do this on a monthly basis. To your point, business is the same whether you're in Idaho, Israel, or Singapore. It doesn't matter the industry. I've learned so much from guys in other industries and other geographies, what they deal with, and the decision-making processes.
The other thing is for me, Seth, everyone always says that you're the average of the 4, 5, 6, whatever. I'm sure there are memes and cliches. There is some truth to that. If you hang out with losers, you're going to be a loser. If you hang out with people that are super smart and wealthy and doing all sorts of stuff. I've tried to hang out with people that are far more motivated, successful, in better shape than me, and more intelligent, and it's the best thing that I've ever done for myself. Over the years, it's helped me progress in every aspect of my life, both personally, professionally, and spiritually, you name it.
If there's anyone out there that ever wants to chat with me about YPO or any of these other groups, I'm in 30 or 40 different countries a year, and I go to these meetings all over the place, and I hang out with a lot of these people. If anyone ever wants to bounce any of this stuff off me, you can track me down at Paul@PotomacCompany.com. I'm happy to tell you about my experience and introduce you to some folks.
Seth Garber: That's awesome. I hope people take advantage of that.
Paul Giannamore: I hope not too many people take advantage of that.
Seth Garber: I was going to ask you which countries you're going to next and I'll jump on the plane with you.
Paul Giannamore: Which countries am I going to next? Portugal is on the list. I've got to get to Portugal. Back to the Middle East as per usual. I've got Asia.
Seth Garber: Portugal would be fun.
Paul Giannamore: I like Portugal. Portugal will be the only trip that I'm taking that'll be far more pleasure than business and the rest will be far more business than pleasure. Nowadays, business and pleasure tend to combine for me.
Seth Garber: It's great.
Paul Giannamore: Seth, we were able to pull this off without a chaperone. Fat Pat is at Fat Camp, I mean church camp.
Seth Garber: He’s a chaperone right now too.
Paul Giannamore: He is a chaperone so he's taking care of some folks over there, some kids. We appreciate all that you do, Fat Pat. Seth, it was a great session.
Seth Garber: It was good to see you, Paul. Look forward to doing it again.
Paul Giannamore: Absolutely, brother. We'll talk soon.
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Dylan Seals: Thank you so much as always for supporting us at The Boardroom Buzz. We know your time is valuable and the fact that you spend 45 minutes or an hour with us means the world. All the media that we put out from Potomac is meant to honor and celebrate you, the service industry owner. As Paul would say, “Yee who toil in the pest control vineyards.”
As part of giving back, we have this podcast, but more than that, Paul and I have been working our tails off over at POTOMAC TV. We've spent a tremendous amount of time, energy, and resources to build out that platform to bring you market updates, to bring you visual breakdowns of the merger acquisition process, and to tell stories and present information in ways that, frankly, it's not possible for us to do on The Boardroom Buzz.
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