Business partnerships often have a negative connotation. Business owners are usually afraid of being taken over by their so-called “partners”. Though scaling your service business involves many risks, scaling expert Brandon Dawson believes that most people forget the exponential rewards that come with it. Brandon sits with Tersh Blissett and Josh Crouch to talk about how he has coached Cardone Ventures’ clients on growing their businesses ten times their current value. Listen in as Brandon shares how he implored strategic growth, perfected the art of scaling, and established generational wealth over the years.
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How Grant Cardone Ventures & 10xHVAC Are Disrupting The HVAC & Plumbing World With Brandon Dawson
Brandon Dawson Shares About Scaling Your HVAC & Plumbing Business
We are super honored to have Brandon Dawson here from Cardone Ventures. We have a big group of guys and gals that are coming into our domain that a lot of us don’t think they know what they’re doing. They have money and influence, but do they know air conditioning? That’s what I’m excited to talk to Brandon about now because we’ve seen the posts on Facebook. We’ve seen everything. Ken Goodrich spoke highly of the organization. We all admire Ken. We appreciate Ken’s feedback on that, but who better to sit here and talk with than Brandon himself? With that being said, welcome to the show, Brandon.
It’s great to be here with you guys. Grant Cardone always sends his best wishes.
Tell us who you are.
Grant is like the face because he’s the social and some of the motivational stuff, but where are you with that?
For the last several years, I’ve built and scaled businesses in different industries. I’m a scaling expert. I focus on preserving independent business owners’ ability to maintain, create wealth and capture that wealth. In my first business, when I was in my twenties, I raised $28 million in private equity, acquired 120 businesses, franchised 1,000 locations, took it public on the American Stock Exchange at 29. I was a little of a lifetime of experience by the time of 32. I was a little irritated. I was like, “In my next company, I’m not going to use anybody else’s money. I’m going to create my own operating system. I’m going to create my own processes.” I realized I was a horrible leader, operator, this and that.
In reflection, I found mentors like John Maxwell, Jim Collins, Sharon Lechter, Robert Anthony, Michael Gerber, and people to fill in the gaps of what I did wrong. In building my businesses, I’ve got to work and become very good friends with all of those authors. I sold my last business. I started with no money in 2016 for 77 times EBITDA, $151 million.
I did it a little differently. Instead of acquiring businesses and cramming down on them to operate, I went to all the independent business owners and said, “I’m going to give you some of my company, and then I’m going to help you. I’ll be your employee.” I built operating teams to help those independent businesses grow and scale. We had an arrangement between us that if they grew, I got to win with them.
I reversed the consolidation theory. My expertise is showing business owners how to start a business, grow the business, create massive value in the business, and then eventually exit the business for one of the highest values. When I sold for 77 times EBITDA, I had to deal with the billion-dollar company that bought me. Their stock had been trading at $16 a share. For five years, it hadn’t moved. Within 36 months, it was $92, and we added over $4.5 billion in value.
I took all those systems, principles, technology, and everything I’ve created with all the research we did. Since 2009 to 2018, I spent $3.5 million in research, force ranking all the future industries that were going to consolidate and converge with technologies, training, personnel issues that would have massive multiples because of the value they could great with tech involved with them. HVAC was on our number one list in 2009. We refreshed that in 2013. It isn’t a new thing that popped up several months ago.
Why is HVAC number one?
It’s because of the convergence of what HVAC touches. I have a relationship with a customer in my installing a thing and servicing a thing. It doesn’t matter what that thing is. In HVAC, you have the aging of old systems. You have the opportunity to go in. Not are you just installing new technology, but you’re converging multiple technologies on top of the older technology opportunities. You have a remarkable service business. You also have a remarkable what’s called add-on business for different things that you can do.
When you can deploy technology into that to manage it, control it, operationalize it, and make it more efficient and more effective, you get tax credits and all these other things coming. Several years of us tracking 350 industries, HVAC, when you look at the transaction values, now that private equity is paying or private business owners are paying to acquire another HVAC business. If you look at the trading multiples, it says that we’re in for a 60-month unbelievable value creation. I’m talking generational wealth well-run HVAC.
Patrick Lang is a good friend of ours. He’s a business broker that only focuses on HVAC companies. He told us several years ago that in 3 to 4 times EBITDA, you’re doing solid.
That was historical valuations. It’s like someone coming and telling you your house is amazing and they’re going to sell it for so much money. When brokers are telling you the value of your businesses, that isn’t exactly validation. It’s when you close a transaction, that’s validation. You’ve got to look at closed transactions, not assumed transactions because of listings.
There is a lot of confusion about how to create value and what value is. My frustration is for business owners that spend their whole life building something. 60% to 70% of those businesses are family-oriented. You have the opportunity to provide generational wealth because business owners don’t tactically understand.
People will say to me, “Brandon, you don’t know anything about HVAC.” I’m like, “I don’t need to know anything about HVAC, but do you know how to sell at twenty of your business in the next 36 months? Do you know how to find, attract, retain, develop, and keep great employees? Do you know how to do all that? That’s where all business owners across all industries struggle.”
Let me play devil’s advocate or at least voice the fears that I hear within the industry, and that’s that you’re going to buy up everything, we’re going to devalue all of that. It’s not only that. It’s like our clients are our livelihoods. We’re in small-town Savannah. We know a lot of our clients are going to do. You’re going to run the ticket price up, lose the value, exit to a VC company, and then be done. That’s what I hear. That’s the perception. Can you elaborate on that?
I always say, if you want to check the character strategy of an individual, look what they did in the past. The business I sold for 77 times EBITDA, I didn’t buy any of those businesses. I partnered with independent business owners that did not know how to grow and scale. I took a percentage of the upside I helped them create, and they outperformed their peer group 3.5 to 15 times in every single market.
The value that was captured was 70% captured by that business owner, and 30% captured by me versus traditional methods is you get 20%, and you busted your ass building all that time. You’re on the breakthrough of creating value, and you end up getting 20%. Screw that. I want the business owner and their family to get 70%.
That’s what I was going to ask you. The partnership is a bad word sometimes. You come in, and you’re like, “I’m no longer the business owner. I’m just the service manager because now I have to do everything that my partner tells me I have to do.”Fear, stress, and anxiety are the things that create negative assumptions. Click To Tweet
There are a lot of assumptions. Let me tell you that when you have fear, stress, anxiety, friction resistance, that creates negative assumptions. Here is what’s scary about us. This is why you read stuff about us. We’ve already been training hundreds of HVAC businesses over the last several years. This is not a new business for us. We do their sales training. We’re already involved.
We have hundreds of HVAC business owners that have invested in our multifamily fund. They already trust us and work with us to give us their money and invest it for them. Grant has raised more crowdfunding dollars, over $750 million in the last several months, than any human being on the planet. A lot of those people investing are HVAC owners that are making money, and they want passive income to augment their active income.
All I have to do is go to them, which we had hundreds of them come through our system in the last several months. We’ve got Growth Con coming up. We’re at 4,000 people, and we’re going to have another 350. What people are afraid of is what they don’t know. Do you know how you eliminate fear? It’s by knowing this.
What’s going to happen is people are going to say and project their beliefs into Facebook and in an environment because they have a self agenda. The self agenda is either to protect themselves or promote what they’re doing. We welcome that. The first thing I ask when people are negative is, “What’s your personal experience? What do you personally know? What do you personally have experienced?”
I heard that Bob’s Air Conditioning down the road sold to a company. They kicked him out and paid him.
That’s because Bob down the road did not know how to structure their deal. If I was your partner, the deal would be structured properly. All the fears are centered around we’re going to take over, cram down on you, and control you. I studied 160 acquisition or roll-up strategies from 1997 to 2005. I call that model a cramdown model. I’ll buy you. I tell you, “In years, you’re going to get more upside by working with me. I turn you into an employee,” and I cram down.
What we’ve created is from a ground-up model because I come to you and say, “You still own the business. You still control the business and make all the decisions, but when’s the last time you had a partner that could show you how to 10X your value, income, and employees? Why don’t you work with me? I’ll teach you how to do it, but in exchange, I want some upside with you. If you do that, not only will we be an upside owner in your business, but you’re going to be an upside owner in my business.”
The last business I sold, 35% of the ownership were my customers. They made more money in the sale of that business than in their businesses were in size when they joined me, and I still didn’t own any control of their business. The problem is that people that have unknowingness immediately go to what they hear. What they hear is everyone else’s naive mistakes that they got sucked into a situation, and they don’t know how to come out of it.
Tell me this, whenever you’re going to do a business and go through that entire process, most of the time, you’re going to show them how to do this and how it’s worked in other businesses. What happens on the capital expense side of things?
Businesses that have to throw a lot of money at marketing are not well-run businesses. They either don’t because they’re growing organically or they do because they need to find customers. My expertise is in building businesses without needing money. I want you to chew on that for a minute. I launched this last business with Grant Cardone. I didn’t ask for any money. We’re 50/50 partners. I started the business using the same principles I teach.
In several months, we’ve done $60 million. We’re investing tens of millions of dollars into other technologies and things. If you know how to build a business and how to do it right, the most important thing is aligning your people with the market opportunity. Most businesses are built from the ground up. Think about it. If you were going to construct a ten-story building, would you go and start constructing it one floor at a time and keep building on top of that, or would you engineer it? Would you put structural engineers to look to confirm it? You are probably going to have to pull some permits. You have to get bids from different GCs and people coming in. You’re going to have a plan before you break ground.
Businesses are built the exact opposite. They keep stacking. I need a phone number, website, employee, vendor relationship, customer, vendor. They keep building on a faulty foundation until they collapse or get stuck. What we’ve done is we’ve looked at thousands of roll-up strategies and independent businesses. We’ve surveyed tens of thousands of business owners.
We create a growth algorithm that shows you exactly where you get stuck and why. If you knew in advance that something was going to get you stuck and you knew what that thing was, and you could deal with it early on, won’t you deal with it? We can show businesses how to accelerate from the start-up to $25 million without complexity in the business and do it very quickly.
Why do you want to practice? When you think of the theory of working smarter, not harder. If you’re practicing while you’re building your business, you’re working harder. If you have structure, strategy, discipline, and a very clear picture of where you’re going, it’s easier to recruit better employees because you can show them how they win with you.
If you’re recruiting people saying, “We’re overworked. We need employees. You get to come in, and you need to work longer hours.” You push people away. Everything that we built is around formulating, finding, attracting, aligning, developing, and retaining key employees. When the business wins, they win. When they win, the business wins, which allows you to attract top talent because instead of talking about how hard it is to be a $5 million business, you’re talking about going to $25 million and what’s in it for them. That’s what business owners don’t understand.
When we come in and partner with them, we architect all of that. In fact, we go out and promote the team members to join them because we train them, show them how to onboard, and create massive value. What people are afraid of, most people when they go and say stuff on social media, is unknowingness or personal preference to what their objective is. They would rather convince you not to look at something than run afoul. You are choosing something other than working with them.
Let’s say they don’t want to do that partnership model. In what ways can you help a business owner outside of them?
I’m an entrepreneur. I was so pissed off at the fact that my private equity sold out prematurely. I made a commitment that no one was ever going to tell me what to do in my business ever again. That’s our philosophy with business owners. We create three different ways that you can work with us. One, you can come through our programs, get educated, do what you want with the information, get on our training systems, use our training systems. We don’t care. We want a relationship.
The second way is that you can hire us. You could do that and also hire us to build your architect blueprints, business strategy, case strategy to the value that you want to create for you, your family, your generational wealth, and align your employees with that objective so you can move bigger, better, and faster.
The third way is you can partner with us. We’ll go out and acquire your competitors once your foundation is built, your confidence is high, and our partnership is on a solid rock because people enter partnerships before they know the cultural, operational, financial integration and who they’re working with. If they don’t know that, it’s not predetermined, and they don’t shift in 97% of what they do. We see stuff like that, where people entered into something, and it didn’t work out because they didn’t know what they were doing.People are afraid of what they don't know. Click To Tweet
As soon as you say, “Should I do a partnership?” They’re like, “Hell no.” I’ve been in this situation. They failed to mention, “We didn’t have a good partner agreement going into this. I didn’t do my due diligence.”
We both have a checking account and 50%. One’s working, and one’s not working. We’re splitting the profits. I’ve been thousands at range from $1 million to $1 billion to $4 billion. I watched the governance and the structural aspects of the businesses. When you don’t even know how to do a basic operating agreement and you go to get a partner or an investor, immediately when they see that, they know you don’t know what you’re doing, and you’re tipping the hand that they’re going to come in and take advantage of you.
The best thing you can do in business is to professionalize your business. When an outsider looks at it, it shows that you’re competent, you’re willing to put the right energy and effort into the right thing, and you’re technically good at what you do. When you’re technically good at what you do, and you don’t have technically sound principles, how you’re doing it, and who you’re doing it with, you’re going to find yourself in trouble.
You mentioned professionalizing the business. Is there a way that somebody can go and say, “I want to professionalize my business?” Let’s say somebody wants to become that person, but they’re not there now.
I’m very good friends with Dr. John Maxwell. I have a leadership program, and I have hundreds of business owners that are in that leadership program. It is for fifteen months. I work very closely with all the authors. I’ve learned from them the things I’ve deployed. They get into an extensive fifteen-month personal development because here’s what I know. If you want to change the outer aspects of your life personally, professionally, or financially, you must first change your inner aspects. Here’s what I tell business owners. This is a 100% guarantee. How often can you get a 100% guarantee?
I’m going to give you a 100% guarantee. You’re never going to hire an outsider to fix your problems inside your business.
How many of us have tried doing this? It’s like, “I can’t figure this out. I’m going to hire you. You’re going to come over and do this one.”
You’re disappointed, and you’re a victim of the circumstance. There are three points of integration that you have to develop in any business, culturally, operationally, and financially. You have to understand how to elevate your cultural engagement with your team because you need them, or you’re not going to be in business.
Do you know what happens? A lot of these people get sucked into the idea of selling their business. Say I grind my whole life. I’m finally $10 million or $20 million. I get private equity or another buyer coming to me. They’re in there doing their quality earnings audit, and they see how crappy I run a business. They see none of my employees have employment agreements and disruption agreements. None of them have non-competes, non-solicitations, IP assignments, nothing.
They come in and do their due diligence. It’s called quality of earnings. They come back and say, “Your computer licenses haven’t been upgraded. You had an employee leave six months ago. It took all your customer names on it. Since you didn’t pay that license, you can’t revoke it and bring it back. You didn’t have any agreement with those employees. We have to discount your business 35% now because here are all the things that are wrong with your business. Here’s where you’re exposed.”
Now you’re sitting there with, “Do I take a bird in the hand? I’ve been through this process. I don’t want to say I’ll fail. What do I do?” It’s called a cramdown. The reason they can go and tell you 8X, 10X or 12X is because they know at closing, you’re going to get 4X or 6X, or they’re synergizing your business. When you go, “I’m getting ten times,” for them buying you, it may be six times because they know they’re going to fire all those people you’re concerned about. They don’t need them because they have their own infrastructure.
The first thing they do is take over. It’s called shooting the lead elephant. They come in and fire all the core people that they don’t need, and they increase your EBITDA. They know the business owners are going to be pissed, disappointed, and get upset. You have to go to the employment agreement, which says if you go off course or undermine it, they get to terminate you. Now they bought your business for 4 or 5 times EBITDA. You’re out of a job. You have no control over your employee. They’ve already wiped out your key team. That’s what people are scared of, and they should be scared of it, but shame on them for not building a business that doesn’t allow that to happen.
That’s an amazing point that you make there. You had to say that once or twice.
It is the reality, though, and we hear that. You know this by now. Most of us are good technicians who are like, “I can do a little bit better than my boss.” They started up their own business. That was a job for years. It wasn’t a business, but it was another job. You’re a slave to that business.
The E-Myth talks about this for many years now. Michael Gerber is talking about 70% of all businesses were technician-based. That’s how businesses start. The thing you have to recognize as a business owner is the what. The thing that you’re good at, that is not going to create a high-value business system that’s going to reward you and your family and the employees for life.
Once the what works, it’s who you do it with and how you do it. It’s making sure you understand that all aspects, $100,000 to $3 million, $3 million to $8 million, $8 million to $15 million, $15 million to $25 million, $25 million to $45 million, $45 million to $75 million, $75 million to $125 million. Why is that key? It’s because when you get to $75 million to $125 million, you have to have the resources to be considered a platform company for private equity, which is why those businesses trade at higher multiples than if you’re $6 million, $8 million, $12 million.
If you’re not $100 million and you’re selling to somebody, they’re going to strip out your infrastructure because they’re selling you to bolt you on or tuck you into somebody who’s already got it. When you’re sitting there thinking you’ve got a great deal at seven times EBITDA, they’re synergized three and a half. If you don’t know how to synergize your EBITDA on the sale process, this is why Grant and I launched 10X Buy Sell.
Anybody thinking of buying or selling a business, come in, let us educate you on how to sell your business and structure it for sale. You can hire us to do that work for you, and you can have us take you to market if you want us to. What scares people is that we’re willing to do that, and you can hire us, come and learn from us, partner with us, go out, partner, and acquire poorly run competitive businesses. That scares quite a bit of people in the space because they know they don’t have that resource, that access, or that knowledge.
You guys are the disruptor that is coming in. The private equity has come in, but there hasn’t been a disruption. It’s been people have been selling.People who lack knowledge immediately go to what they hear. And often, what they hear is everyone else's naive mistakes. Click To Tweet
We’re seeing a lot of VCs and RP. It’s like, “This company is sold.” It’s like, “What’s going on here?”
A lot of people would be getting the calls and emails. You guys are marketing resources because you guys have that money to market to them. You keep seeing these posts pop up all over the place because all of a sudden, it’s like, “These guys are moving in hard.”
I want to ask this, market share, when you’re going in and looking at, “That market is too small for us to make money or to make it make sense,” or is it like, “As long as you make sense as a business owner, we can make it?”
Let’s talk about Savannah, Georgia. How many competitors do you have in Savannah, Georgia?
How much dollar transactions have been done in HVAC in Savannah, Georgia?
A lot, $58 million.
How many competitors are doing that?
A lot. There’s nobody that’s really big.
How big can you build a business in Savannah, Georgia?
How do you build a business, $58 million in Savannah, Georgia, when you have all our competitors?
Why not outperform them? Why not take their technicians? Why not be a better employer of choice? Why not offer benefits, services, and programs that your competitors don’t offer? Why not train, develop, find people to give them the ability to learn a new craft or a new trade? What most business owners think about because they started their business and built it up, “I got to get to $1 million.” You get to $1 million. You’re like, “I want to get to $3 million.” You get to 3 million. “I want to get to %5 million.” You get to $5 million.
What we do is engineer it from the top down. I’ll come in and say to you exactly what that revenue size and you’re never going to own 100% of the market. You’ve got to divide the revenue opportunity based on the number of competitors in the density of the demographics. Once you start tracking and mapping to marketplaces, I can come in and tell you, “We have guys and gals that are getting a 26% market share in their relative market. We know a benchmark is 26%. We’ll know what’s 26% of $60 million, and we’ll engineer exactly how to go get it.”
When all of a sudden, you have a clear picture, the marketing is easier because you know what you’re messaging. What most people do is sprinkle messaging, and then there are liars. What happens is you go hire a marketing agency, and they go, “How do you want to be perceived in the community?” “I want to be perceived that we’re an expert, we care about everybody we work with, fast, efficient, effective, do a great job and advocate for our clients.”
They go build that website, the first phone call rings, and nobody answers, or the first phone call, and they tell them, “Hold,” or they hit a ticket online, and then no one responds to them. Your people aren’t aligned with the expectation that when we put messaging out, we must perfect what we do to engage the clients we work with in order to have high operational effectiveness so that we get delighted clients who give us remarkable reviews that we continue to do business with for generations. We create a healthy and happy environment where we can attract the best people because we have a strategy and plan and know how to execute it.
If that doesn’t sound like you as a business owner, and instead, you’re showing up letting Martha or John answer the phones however they want to. Let Rick or Betty in the shop, do whatever they want to, schedule the appointments in any way they want to. Your technicians are showing up at people’s houses fixing things, leaving and not telling them you got other problems, and not advising them that, “We’re going to have to come back. You’re probably going to get pissed because you’re going to think I might’ve broken something. The fact is here are twelve things you’re going to want to fix.” If you don’t have processes, systems, protocols, and incentives in place, you’re going to be in trouble as a business owner.
They should be afraid of when private equity goes around and starts building $100 million, $200 million, $500 million platform companies. They have all the digital tools and digital assets. They can hire training and development people. They can platform out all aspects of your business. They can saturate and dominate.Even when you're technically good at what you do, but you don't have sound principles on how you're doing it and who you're doing it with, you're going to find yourself in trouble. Click To Tweet
At some point, that’s going to put pressure on purchase pricing because, at some point, you say, “Why buy when we can build?” Everyone is scared about the buyers. What they need to do to combat that is be the builder. That’s what we bring to them. We say, “If we help you blow this thing up, do you care for your partner? If we don’t help you and you’re not blowing it up, you can leave. You have no obligation.” That is a 100% guarantee. If it doesn’t work, do something different. If it does work, treat us the same way you want us to treat you.
You guys have some events coming up. Where can people learn more about what you guys are doing?
If you go to CardoneVentures.com/HVAC, you’ll start seeing some of the things we’re doing. We have Growth Con coming up. We’ll have 4,000 people in attendance in Miami, Florida. In that group, we’ll have 300 to 400 HVAC independent business owners that are there to look at what we’re doing, talk to us about getting involved, and see how we can help them grow, scale, and create massive value in their business.
You have some HVAC companies that you have worked with.
We’ve been working with hundreds of them. For me, I’m not going to go into a space until I’m working with enough of them that we can test all of our theories, systems, training, and marketing. If I can’t take them up 3X, 4X, 5X in value, I don’t have the confidence I can come in and help. Once I do that with dozens of HVAC owners, I’m like, “We figured this thing out.”
Are you new construction? Are you going in and retroing? Are you doing a commercial? You have different facets. When people talk about HVAC, there are different strategies for different people doing different things. We needed to map that and organize it in our scaling technology platforms so that we know that when you get to this point, you need to do these things. When you get over these points, you need to get ready to do these things. We’ve done all that.
Let’s go to market, where now we’re going to bring in 1,000 HVAC owners in the next nine months. We’re going to show them what we’re doing. We’re going to give them an opt-in to what we do, and we’ll start a relationship. Over the next 36 months, I’ll bring thousands of HVAC people through and the brand 10X HVAC will be seen as, “We’re part of this organization.”
It’s a disruptor in our industry. We’re a pretty tight-knit little industry, even though it’s across the country. It is interesting and exciting. I’m thankful for you answering a lot of questions.
I saw this stuff come through and stuff like that. We were sitting there and talking with you. The stuff you’re mentioning are bottlenecks for a lot of people. You probably know these businesses better than we do.
You hit the nail on the head. You’ve heard it once or twice.
Out of fairness, I want to give the readers to this. I know you’re in a tight industry, but thousands of industries all have to deal with the same thing. You’re unique in what you do, but you’re not unique in how you have to do it. The thing is, people get caught up in the what they do. Once they get beyond the what, the how is going to be more important with value creation, who they do it with, how they keep those people through the cycle of success and how they include them in the cycle of success.
The hardest thing for a business once you get to a certain size is when you start shedding your best people because they have a lack of clarity on how to win with you, and you haven’t structured it for them. You keep making false promises, but they don’t feel it or see it. You’re out buying a new boat, a new car, and they’re all like, “We’re getting left behind here. We’ll go start our own thing.”
Sixty-five percent of competitors in every market were created from a dominant business that shedded their employees. If you know that, let’s stop doing that. Let’s find a path for our employees to be part of something bigger, better, more impactful, and more valuable for them and their families but don’t talk about it in the future hope that it can happen. Let’s engineer it from the ground up and have them pulling the business owner so you’re not feeling like you have to do all the lifting because that’s what burns business owners
Let me ask the last question that I have. What is the amount of time that you plan on selling or building this up because, at some point, you have to build up this stuff to sell?
This is another misnomer, but why would somebody think that?
From what I’ve read, the thought process is at some point, the market’s going to crash, and you want to sell before the market crashes.
I don’t think anybody’s going to come in here and be an expert on timing markets. We’ve been tracking HVAC for several years. People would have told you several years ago, “It’s a sleepy mom-and-pop industry, and it’s going to trade at low value.” If you understand how markets work, $33 trillion of wealth transfers are happening in the next eight years. That $33 trillion of wealth transfer, 70% is going to family offices, 30% is going to venture and private equity.
The family offices have the 70% cannot by charter invest in things less than $1 billion of market cap in generating a 3% dividend because the charities and the kids who don’t know how to build the wealth need to live off it. If you follow the money and number of SPACs, five SPACs several years ago, 360 SPACs in 2021. Those SPACs have raised billions and millions. If they don’t deploy these SPACs, they lose to promote.
You have a bunch of investors. They’re going to lose billions of dollars if they can’t find something to acquire. You’ve got all this pressure in the marketplace. The value isn’t in selling. What if we put $5 billion of HVAC together, go public, and everybody sells 10% or 20% of their business for more than they’d ever sell 100% for? They still own and control it.
They can now use long-term stock incentives for value creation for their employees. People would say, “Does that happen?” Look around. Those are the most successful companies that are doing it. The private equity guys, that’s what they’re racing too. If you allow them to get there before we get there as a community, we’re clear. We’re not coming in and changing HVAC.Treat people the same way you want them to treat you. Click To Tweet
We’re coming in and turbocharging the best of what works so the people that created those businesses can keep that value. It’s not so we get it, we’re going to share in it, but it’s going to the people that created it. All of a sudden, if you’re part of a multibillion-dollar public company, you can sell 10% of the value of your business to the open market or 20%, and you put that money in your pocket, that’s going to be worth more than you have 100% of doing it on your own.
Think about it this way. Would you rather sell your business and make 10% of $5 million or sell and make 3% of $30 million?
The confusion is the exit strategy.
What if they don’t want to stay in business forever?
You got a public vehicle that you can put your company to, that you’re already fully integrated with, or you can have family members involved. You can use your equity. You can go leverage your equity and do a buyout. This is why companies go public. What people don’t understand is they think in order to go public, you’ve got to give everything up. That’s not true.
You can reverse consolidation, aggregate thousands of businesses into a vehicle, and take that vehicle public. That’s tethered to those businesses of which you’re an owner of that vehicle, and you own your business. Nobody knows this because nobody else is doing it. That means you can’t get 80% of the value. The whole structure of investing in businesses and acquiring businesses has been created for the financial guys. It has not been created for business people.
What we’re doing is showing the business people that are doing the work, generational families, in some cases, how to capture that wealth instead of giving it away. This is our mission. That mission was set when my private equity guys sold my business out from underneath me. I was like, “If there is one thing I’m going to do on this Earth, all somebody has to do is engage.” My business partner feels exactly the same way.
We’re democratizing the ability to create the same value for business owners that Wall Street has. Here’s another interesting thing. There are three sectors, home care services, healthcare services, financial services. Those three sectors make up 49% of the GDP and 66% of the workforce. They’re only represented 6% of the stock market. Follow the numbers and you’d understand who’s getting screwed down.
How much potential is there for that?
We’re doing the same thing in multiple verticals. We’ve got a healthcare company, HVAC business, cybersecurity business. We’re rolling out across multiple businesses. The whole goal is to give access to those public markets to the people who are doing the work. They have to concede, “I don’t know how to do this. Maybe I should listen to someone who’s helping me and forge a relationship. If it’s working, it’s phenomenal. If it’s not, disengage.”
If you’re going to throw shade on that business strategy that I’ve already proven works, you present to me the alternative. Complaining about it, being fearful about it, and saying, “People should stay away from it.” Great. Let’s get on a podcast with video cameras. You present your business case to these independent business owners. I’ll present mine, and we’ll let them vote on it. This is what happens when you get screwed out of your business. I never forgot it.
This has been awesome to uncover this because it’s been all over, and it keeps popping up because people keep saying, “Anyone going to 10X, going to this, and we’re going to that.” It keeps that conversation where nobody knows what’s going on, but this has been great for you to see.
If you know anything about Grant Cardone, he’s the most tenacious human being on this planet. When he sets his mind to something, he has a track record of doing it, raising more crowdfunding than anyone in the globe in the last several months. Think about that. If I want to go out and raise $100 million or $500 million for our group of businesses, I go to Grant and say, “Let’s do it.” We launched Cardone Equity Group, which is our private equity group. Not so that we can buy businesses, but so we can invest in businesses of competitors to people that we’ve partnered with. Our whole business system is going deep with a relationship and dominating that market.
How does that even work with you when you’re buying up competitors? What if the competitor still wants to do the same thing?
Anybody is allowed to come to our learning programs and everything else, but once we go deep enough into the system where we’re partners, we’re partners. Everything we do in that market is to dominate. That’s why we’re not going to have a network of 10,000 businesses. We’ll have a network of probably 1,000 dominant players that are going to be somewhere in the $25 million to $50 million range. What size business is that? Does anybody have any ideas? $125 million of businesses is how much? It’s $2.5 billion. 1,000 is $25 billion in market value. People would say, “That’s obnoxious. That’s ridiculous.” Let’s put a bet on it.
What’s your target for a timeline for that to happen?
I have a goal of 36 months having the founder pool of our management company filled with partners that are building their businesses to $25 million of market. If you’re already a $75 million or $100 million, fine, we’ll partner with you. The goal is to have the foundational group with all the systems, the automation, all the marketing algorithms, all that stuff dialed in. This isn’t just domestic. We’re already talking to partners and other parts of the world.
The idea is to get everybody unified, all one chart of accounts, all operating off of the same protocols. We’re out recruiting as the VR. We’re going to be partnering with people. We’re not going to have to build that stuff. There are brilliant people. We’re already built it, but distribution, the independent business owner, is not embracing technology. They don’t have a clean P&L, great chart of accounts, and marketing strategy. The congestion with growth is not deploying things that will make your business better and continuing to try to do it the old-fashioned way because that’s what everybody is comfortable with.
Brandon, it’s been great. Dennis has a question out here.
If you look at some of the transaction values in plumbing because that is another vertical that we track, and this is what’s beautiful about the convergence of different verticals. The pressure on HVAC businesses now private equity is going after plumbing businesses, tertiary businesses, and businesses that support a key business called convergence. That is exactly the same strategy.
We have relationships going with plumbers and with HVAC. If you touch it, we’re talking to people about it. The convergence of marketplaces is where the big value is because you have one relationship with which you can do multiple things. The more you can introduce technology and service to that, the higher value of your business is.
Everyone on Wall Street knows this. They’re trying to beat all the independents to the punch to get this in place so they can disproportionately own the market. When they have partnerships with insurance companies that already know when warranties expire on every piece of equipment in the house, and you’re still going straight street to street knocking on the doors, they’re going to beat you to the punch. We need to beat them. I’ll do it faster than they’ll do it because instead of deploying capital, I’m deploying relationships.
Brandon, I appreciate this 100%.
Thank you guys for having me on your show.
We look forward to talking to you again. I want to revisit this again. Let’s see what everybody saying.
I love accountability. What I’d like you guys to do is let’s go back and say where are we at compared to what I said several months ago. If you guys want to come to growth con and check it out for yourself, why don’t you go come as my invitees? You can see it for yourself. I promise you your mind will be blown. To anybody that wants to figure out what we’re doing, CardoneVentures.com/HVAC, even if you’re a plumber. Have a conversation with one of our business advisors. We’ll see if we can get you an invite to that exclusive program
I appreciate it. Thank you, guys.
Thank you, everyone.
About Brandon Dawson
A serial entrepreneur and business leader with a passion for helping business owners amplify their vision and impact, through belief, strategy, and team alignment.
I founded my first company at age 28, Sonus, where I served as Founder and CEO for seven years. I learned a lot about raising money from high net worth individuals, private equity firms and strategic partnerships. Over five years, I made over 150 presentations to raise capital, completed over 100 acquisitions, and created distribution agreements with over one thousand independent business owners and dozens of suppliers. With four separate equity raises totaling 38 million dollars, and negotiating 20 million in strategic debt financing I learned a lot about the process, and different equity and debt structures, not to mention negotiation skills in purchasing businesses.
I have been the CEO and Chairman of both a Canadian listed and US listed public company. Another fun fact is that when I listed Sonus on the American Stock Exchange in 1998, I was one of the youngest people to do so. Being the CEO and Chairman of a public company, I learned a lot about the importance of governance, leadership, responsibility and positioning. Learning to run Board of Director meetings with Audit, compensation and legal committees I learned while doing, and fast. I also learned that you can never learn or know too much, or fast enough.
My journey starting and growing Sonus was invaluable. Raising capital, negotiating purchase agreements, closing on, integrating and operationalizing so many businesses while navigating the building of technology platforms, hiring and developing teams, creating new business concepts and on and on was so educational that it formed my thinking about what can be done. But more important than what I learned to do, were the painful lessons in what NOT to do. As I pivoted my business model into a new direction, I was untimely replaced by my private equity partner as they didn’t like my direction. So they opted to replace me and sell the company. This was a painful, yet powerfully transformative time for me.
From there, I took everything that I had learned, good and bad, and decided to start a new company, Audigy, with what I had left of my cash. I created a strategy and proprietary capital structure based on exemplifying what we did do well in my first company, and ensuring I didn’t repeat what I did not do well. My purpose and passion of supporting and preserving independent business owners who have the desire to become more profitable, grow their existing business, expand to new markets, and inspire and align their teams.
Without ever raising or borrowing money, we purely built Audigy through organically funded growth. Today, we are the leader in private practice Audiology with more than 300 of the leading independent hearing healthcare and medical businesses throughout North America. Audigy has grown from a startup in 2004 to managing more than 650 locations and in excess of 1800 employees with $300 million in aggregate revenue. Audigy Group itself has grown from $500,000 in revenue in 2005 to approximately $35 million in revenue in 2016 when I sold it, with 180 employees.
In 2016, I sold Audigy for purchase price of $151M, which was 77x EBITDA. I am proud that the equity structure I created allowed for everyone from our members to all of our employees share in the proceeds. What has been most astonishing in my career is that while Audigy had this growth in value, we transformed hundreds of lives as well. On average, our customers grew 3 times the value of their peer group who didn’t work with us. It was beyond gratifying to help so many business owners elevate their belief about what can be done, build dynamic teams, and dominate their markets. Since selling Audigy, my team and I have worked closely with the acquirer to grow their business. Since they purchased us, they have grown by three times in value, which is a testament to the strength of our network, our collective teams and our ability to execute.
All of this leads me to today. In many ways, I’m reinventing myself and the business yet again in order to meet the demands of our changing world. Ever since I lost my first company, it has been my mission to empower business owners to take control of their destiny and create substantive value for them personally, professionally, and financially. My commitment to this vision will never waver.
This is yet another transformative time in my evolution: as a business man, a father, a grandfather, and a partner to my loving fiancé. I have a clear vision of my future, the impact I still aspire to make, and I’ve never been more excited about the future than I am at this moment. There are limitless opportunities for people who put themselves in play and believe that they can be change makers. So let’s get going! We have work to do.