Marketing is a crucial component for any company's growth, but it is even more critical in 2022 for the Property Management Industry. Brad is joined by Matthew Whittaker is the founder and CEO of Evernest where Spencer Sutton is their marketing director. Together, Matthew and Spencer host the podcast '300 to 3000' and they bring their expertise to the Property Management Mastermind podcast to help your marketing for growth.
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Announcer: Welcome to the property Management mastermind show with your host Brad Larsen. Brad owns one of the fastest growing property management companies in San Antonio, Texas. This podcast is for property managers by property managers. You'll hear from industry leading professionals on best practices, new ideas, success stories and lessons learned. This is your opportunity to learn about the latest industry buzz surrounding property management, as well as tips and strategies to improve your business.
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Brad Larsen: Welcome everybody to another edition of the Property Manager Mastermind podcast show. I am your host, Brad Larsen and today's guests. I don't know if I want to call them special. They might be special because they've been known to lick windows and ride on a short bus now and again. But they are a couple of good guys, the industry Matthew Whitaker and Spencer Sutton with evanescent and I've had him on the show before and we have all kinds of banter and conversation, and I make fun of these two and they make fun of me. But I want to get them on to talk about just what's going on with A7's, what's going on with the industry growth, organic acquisitions, I mean, they're just some cool topics that we can touch on. And so without further ado, I want to give you an opportunity to introduce themselves and say, Hey, thanks for coming on the show, guys. Looking forward to a fun conversation, Matthew, go ahead with your intro.
Matthew Whittaker: Yeah. What's up, everybody? My name is Matthew Whitaker and I am the CEO here at Evanescent and started Evanescence a number of years back. And Evans is about six thousand homes under management today. And we're super excited to have made it that far and brought on my colleague Spencer, who is a good friend of mine. He and I were friends. We've both been in the industry for almost 20 years. And so when when we needed a marketing team or a marketing person, I went begging Spencer to come work with me, Spencer.
Spencer Sutton: What's up, everybody, Spencer Sutton here, thanks, Matthew and Brad. Yeah, I remember Matthew and I, we met at a restaurant and we were just talking about I could see he desperately needed help with marketing like he was struggling. And so I said, Man, let me help you out. I was actually thinking about doing this on the side for you, and you were like, Hey, let me tell you about this crazy vision. I have to get to twenty five thousand properties. And so that piqued my interest, and I joined the team just a few few, I think a few weeks later into 2014.
Matthew Whittaker: You were telling me how garbage my marketing was and I was, how important you were. And all of that was part of the negotiation to negotiate this exorbitant salary to come work with us.
Spencer Sutton: Well, the great thing is, Matthew was like, Hey, I want you to come and build this enormous marketing team at evanescent and just and I got there and he was like, Really, it's just going to be you for the first ten years. And then what
Matthew Whittaker: I meant is you'll need you need to work like one hundred hours, and that's like an enormous marketing team.
Spencer Sutton: Oh, by the way, I want you to sell leaseback clown.
Brad Larsen: Oh, I'm
Matthew Whittaker: Sorry, we're on Brad's show. Oh, I forgot. I forgot we weren't on our shows.
Brad Larsen: Are taking over your show. You guys do have a really kick ass podcast, by the way. Three hundred and three thousand, I think, is the name. If I'm getting it correctly and I listen a lot of those episodes and I do think it's pretty good stuff. And so what I drew out from that is, I think there's a there's a fascination and a desire to learn more about growth, which is why I'm bringing the guys on. It's going to be a start of our conversation. And what's really interesting about you all are doing is you have a big strategic growth model of getting to twenty five thousand homes, which requires a skill set of acquisitions, meaning you're buying other management companies in the meantime, at the grassroots level, ground level you're doing acquisition. Excuse me, you're doing organic growth, which is what most people are doing. 90 percent. Ninety five percent of the management companies out there just want to get good at doing organic growth, meaning one at a time, one kitchen table presentation at a time, getting your onesie twosies signed up, having good business procedures in place as far as your development side, having good people in place. So let's talk on of both of these sides because on the strategic level, which is probably we should talk about first, because once you have a new acquisition lined up in a new market, OK, done integrated, check the box. Now we need to grow organically from that new market so we can continue to expand our footprint. So the cart before the horse. Let's talk about the strategic side of the big acquisitions you guys are doing.
Matthew Whittaker: Yeah, I think I think the first strategic decision is kind of the whole reason we named it three hundred to three thousand was what we saw in the marketplace. At three hundred homes. There is like is a great number of homes and it could be three hundred, it could be five hundred. But it's kind of like a really efficient property management business. You have a great technician who's probably a great property manager who is leading, managing and directing a small group of people, and that person is making a lot of the decisions regarding everybody's property. But what we saw was this we kind of experience this in our growth and we kind of relate it back to the myth is that the great technician? It took a different skill set to grow a property management company to three thousand doors and beyond because it went from being able to manage properties. How well can you manage properties to more of a leadership question? How can how well can you manage people? So I think the first strategic decision people need to really think about is, am I into property management? Like, do I enjoy managing the homes or am I more like into growing a business and growing like scaling an actual organization where I'm going to be required to manage more people? And so that to me is like the first strategic decision.
Matthew Whittaker: And then stuff like acquisition comes after that because I don't necessarily think a property manager needs to grow past three hundred to five hundred. In fact, I think and our industry is absolutely changing. I think anybody that doesn't believe that has their head in the sand. But I also believe that the 300 to 500 unit property manager is going to be here to stay. I think that I call them a boutique manager. I think they're going to be here to stay. But I also believe that once you grow past that, you're really going to need to scale your organization to to have the benefits of scale instead of getting caught in the middle. You don't want to be caught in the middle where essentially you don't. You don't know all your owners names, but you also don't give them the benefit of scale. So let's talk about acquisitions because I know that's what the question was. But I think, like strategically, question number one is, do you want to grow past that, Spencer? You want to talk about acquisitions?
Spencer Sutton: No, I think. You're the master of acquisitions, but I I agree with that, I mean, as a matter of fact, we one of our first episodes in our podcast was making the decision to grow right to actually scale your business because it's completely different than maintaining five hundred doors.
Matthew Whittaker: So thinking through the lens of acquisitions, like when we first, we kind of set this goal to grow to twenty five thousand houses and we live. Spencer and I both live in the market Birmingham, Birmingham, Alabama. And you know, there's like a million two people here. And so managing twenty five thousand houses while there are twenty five thousand houses in Birmingham, there's not that many more. So we'd have to manage almost one hundred percent of them. And so we knew for us to reach our goals, we were going to have to grow outside of Birmingham. And so kind of first step was what we experienced was we moved a team member up to Nashville and tried to grow that market organically. And so Nashville is about two, two and a half hours north of where we sit in Birmingham. And when we tried to do that, we just we spun our wheels. It was really hard. Spencer hadn't quite built the marketing engine that we have now and and frankly, we didn't have the resources to build the marketing engine yet. And so when we when we when we got up there, we just spun our wheels. We didn't we didn't land any management agreements and ironically enough, two or three months. And thank God, later, we were actually approached by a guy who was retiring, who managed about one hundred and fifty homes. And that was kind of like our we had bought a business in Birmingham, but that was kind of our first realization that getting to one hundred and fifty homes from zero is way easier or way harder than getting to three hundred or five hundred homes from one hundred and fifty. So each incremental door that you manages is easier. So as this thing builds, which is kind of the benefit of scale as it builds, it builds kind of the flywheel of momentum, if you will. And so what we realized was, hey, if we're going to grow to two twenty five thousand houses to move into a new market, we're going to need to do that through acquisition.
Brad Larsen: I think we should take the opportunity to do is really dive deep into the lifecycle of an acquisition because a lot of the listeners want to understand, where do you get the leads from so we can talk lead generation, we can talk due diligence, we can talk financing, we can talk all of the employee issues that you have to go through. We can talk integration and we can also talk, you know, how you kind of organically grow after an integration. So going back to it, let's talk specifically on lead generation because now to kind of kick this off, I don't think it's necessarily something that it's just like, Hey, you turn, you can flip a switch and start generating leads. You know, you can start, you know, put an ad out or anything like that. It's a campaign probably five or ten or 15 different things to include podcasting, like what you're doing to include getting the word out, to include organic searches, to include business brokers that you're dealing with from all different types of markets. Talk to me just about acquisition lead generation just for fun. See where we go.
Matthew Whittaker: Yeah, it's kind of funny because we actually are thinking through this very deeply right now. We're having a lot of internal conversations, so it's probably a good time to be talking about it. So the way we've looked at it thus far is, yes, the more we can get our brand out there, the more awareness we can get in the industry, the more people know us. Then more people know that we're buying businesses and frankly, doing podcasts like this is one way to do that. Doing our own podcast is another way to do that. Then by virtue of the fact that more people know who we are, then more people are going to contact us about selling their businesses. And so we kind of look through the acquisition world through through different avatars, right? There's different reasons people decide to sell their business. Some examples of that are retirement, right? Like somebody may decide, you know, it's time. I don't have children in this business and I need to sell this business and I want to go retire. Another one may be there's another opportunity. So we have a lot of people that come to us and say, you know, I've got this other opportunity I'd really like to pursue. This business is holding me back from doing that, and I'd love to sell this business and go pursue that other opportunity. So we kind of to like, start marketing. You kind of have to think through the lens of why do people sell you businesses? And then to me, you've got a fish where those people are. And so obviously speaking at industry events like Nabil PM-KISAN, any kind of conference that we can get on the on the docket and share our story or share some things that we're doing, then it just raises our brand awareness.
Matthew Whittaker: You know, we've done some active outreach to to property managers. And so it's pretty obvious what that could be. It's like emails and in letters. So but I think at the heart of it, you've got to understand this also gets into your. Acquisition strategy, because, you know, there's there's a lot of different actually acquirers in this industry, but everybody's strategy is a little bit different. In other words, the person they want to acquire is different. Know some people are looking for just operators, so we want you to come be a part of our operation and basically just run your business the same way you've been running it and we'll we'll put our brand on it. Some people, you know, are looking for to to to replace the the the operator, and that's like a great way of somebody. And that's us. We love to be able to replace the operator because our business is all about everybody doing it, everybody rowing in the same direction, everybody running the same processes. So, you know, at the end of the day, what are you best at finding operators like if you found an operator? We feel like that's that's an easy way probably to grow if you can find an excellent operator and you can acquire them and they want to continue to run the business. That's an excellent way to grow. We've just chosen a little bit different path where we say, Hey, we want to train everybody to do it our way. We want everybody running the business model, everybody doing it the best way. And so that that creates a little bit different. Avatar who who you acquire. So step one is figuring out who you want to acquire and what that looks like
Brad Larsen: In tandem with lead generation. There is a lot of competition out there right now. So what would be some of your points of difference if you're talking to a business who might be talking to three or four or five different players that are all interested in acquiring that business? So talk me through some of your good points of difference.
Spencer Sutton: Yeah, I think before, before, before we do that, Matthew, let me let me point out something that I think is important. And for people who are looking to potentially just start out and maybe acquire, this would be a great point for them. You know, when I was looking at how Matthew started doing this, you know, we don't we didn't have an RPM chapter chapter in Birmingham. So he would travel to Nashville's Northam chapter. He traveled to Atlanta and meet with them, and he just developed relationships over a long period of time. And so I think probably the first thing that somebody can do is just develop relationships within the industry, get to know people. And the more that you share your story like, Hey, we're looking to acquire and the more you develop those relationships, I think the first one actually came. Well, the first one outside of Birmingham came through just a relationship that Matthew formed over the course of several years. So it wasn't a bunch of marketing at that point. It was just, Hey, this is what we're looking to do.
Matthew Whittaker: Yeah, if you're getting started the whole, the whole marketing thing, if you don't have a brand like market behind, it's really more about hustle. It's about getting out in the in the house business. When you're buying the house like we, Spencer and I used to be in the house business and we would go show up and try to. We'd market heavily and try to buy these houses and we'd show up and we'd have almost a deal done. And the worst person that could show up would be the neighbor because the neighbor would always pay more than we would be willing to pay. And so, you know, by virtue of the fact that you're in a market, you are the if you're just getting started, you are the neighbor, right? Like me and Spencer are showing up trying to buy a business, but the neighbor is always the one that ends up getting the deal because it's about relationship. And you know, you can see that those types of conversations, how that conversation could easily go well, you know, so and so offered me one hundred thousand for my house. Well, I'll pay you one hundred and five. So that's, you know, that kind of stuff still happens in this industry. So knowing being out and hustling is is a, you know, is step one to starting to acquire a business.
Brad Larsen: Also, I would think you got to dive deep into a point of difference of it's not just all about the money sometimes. So if a person is trying to sell you a business with five hundred units and they're talking to four or five or six other players that are all interested in purchasing, it's not just about the top dollar line. A lot of times it's going to be about the terms. It's going to be about the gut feel. It's going to be about you guys asking the right questions or any purchase or acquirer asking the right questions of, you know, what do you want to do, Mr. and Mrs. Seller? Once you sell the business, what do you want to do and how do we help you accomplish your goals? If you want to sail into the sunset? Great. Let's figure out a way to get you everything right now. Cash on the barrelhead done? Or are you interested? Maybe, you know, expressing interest in and breaking up that you do want terms. You want to make a little bit of money every year for a few years so you're not killed with the tax burden. I mean, what do you want, Mr. Mrs. Seller? And so it goes deep into that. I want you to talk more about that because really the points of difference are one at the forefront of the marketing. Ok, cool. You got a cool logo. Cool brand. Cool story. But then getting down to the nitty gritty of an actual letter of intent and making your points of difference in that regard, I think there's something you want to expand on.
Matthew Whittaker: Yeah, I'd love to. So the way we look at it is, first of all, we are operators first. I think one of the things that's unique about us is, you know, I was a property manager. I mean, the way I got started was just the same. A lot of these people that are selling us their business did it's cell phone me riding around in a pickup truck, trying to land deals myself, I always joke with Spencer. I was the best salesperson we ever had. Spencer says it's because I just committed to anything to do, anything to get.
Spencer Sutton: He just he just made up. He just made up as close percentage.
Matthew Whittaker: So. So I think I think, you know, if you look at it through the lens, you know, we're not Silicon Valley or not Wall Street, you know, we're kind of Main Street, right? Like, we're no different. And just kind of, you know, when we're talking to owners that are trying to retire, we talk to them about legacy. And and I get along really well with a lot of owners because we've had a lot of shared experiences and a lot of people that are getting out of this business to go do something else. A lot of us got in the business at the same time, you know, during the recession, a lot of us were driven to this business because we were out either buying and selling houses or being an agent for other people. And so at the end of the day, we are operators first. So we're running a successful operation and that's kind of like our first thing. And so one of the things we're going to talk to an owner about is how important it is for us to protect their legacy. So that's incredibly important. The second thing which I kind of hit on is around systems and processes. A lot of a lot of the businesses out there today are actually different businesses that are essentially all under the same brand.
Matthew Whittaker: So they're running individual businesses and then it's kind of rolled up into the same brand. And that's a that's a really successful way to build a roll up. What we think, though, is to build a long term brand that has tremendous value that that we're going to run. Everybody in every market is going to be doing everything almost exactly the same now. Denver is a little bit different than Birmingham, and that's a little bit different than Nashville. So we run about 90 percent of our operation the exact same way in every market. And what that does is it allows clients to invest in multiple markets and essentially whether that's institutional or even retail investors that allows them to to get a consistent product. So that's one of the things that excites us about buying from what we would call Doug, the deal maker, which is the person that wants to go do something else or from the the retiring property manager is they allow us to kind of bring it into our ecosystem and run the business the way we want to run the business.
Brad Larsen: Are you going to have to elaborate on the difference that you're kind of glazing over is the where the money is, where the money is coming from because you guys are? I'll let you explain it, but your competition out there is you do have Wall Street, as you mentioned, you do have Silicon Valley and a lot of times they're getting venture capital money and or some sort of group investment money. And it just seems like the money is flowing in and they're out there, just open checkbook writing checks to acquire businesses. And there's four or five six players out there that are doing this. And some of it's, you know, venture capital. Some of it's in different money, but talk us through kind of where you guys are in that perspective in that spectrum and elaborate on that.
Matthew Whittaker: Yeah, we've raised a little bit of money and this actually gets into my third point of differentiator. So I'm glad you asked the question. We've raised a little bit of capital, but we've used a lot of bank financing. We use kind of a bunch of different resources to get to the point where we are now at six thousand doors. I think one of the interesting things about us is, you know, we've made money kind of along the way. And so we've also been able to reinvest the capital that we've made back into the business. So that's a that's a point of differentiation to is we're we're constantly building this business, but we're constantly also making money. And I think one of the things that's been really important to us is having clear leadership and a clear direction and one of the, you know, Andy Stanley, who's a who's a guy that runs a church over in Atlanta. He says that I'm not the smartest, but I was here first, and that's the way I look at my role here at evenness. I'm certainly not the smartest here, but I was definitely here first. And so, you know, we've kind of set a clear direction and it's very obvious where we're going. And I think I think that's a point of differentiation, too, which is allowed us to cash flow the business. It's allowed us to grow the business and everybody is in the in the system is rowing in the same direction.
Brad Larsen: I'm going to interject my two cents here on this one because I see the proliferation of all this money coming in. I see these these big deal makers, they form and they go out and they do a bunch of high end level acquisitions, but they're also giving away part of their business. And maybe I'm wrong. Maybe I'm right. Maybe you could help me expand on that. But in doing so, they're giving away part of their business at a certain point. They can only give away so much of their business in a. Addition to the regular check writing that they're going to be doing, which then equates them to the same level as everybody else after that, that initial push, that initial wave of incoming deals. And then it puts them back to square one and they're competing with everybody. Not so much, necessarily in price, because at that point, they can they cannot afford to overpay. They can't pay twice what anybody else would pay just because they want the deals that bad. So they're not going to be like there's a race to the integration and operation side and then the feel good side. So any comments on that initial phase of an acquisition with these bigger conglomerates?
Matthew Whittaker: No, I think the initial phase is a strategy. I think it's a it's probably a wise strategy given what they want to do, and it makes a lot of sense that that they're trying to go out and acquire some of the bigger names in the business right off the bat. Because what it is is and Spencer Spencer can help me. What's the the marketing term where where people are seeing other people doing it so well? I don't know. But you know what? Is a testimony? What does that called?
Spencer Sutton: Oh yeah, it's a tremendous social proof, social proof.
Matthew Whittaker: So I mean, basically, it creates social proof, right? If if so. And so if Brad Larsen is selling his business to X Y Z management company because I know Brad Larsen then and I know Brad Larsen is a smart guy, then I'm going to be more than likely willing to sell mine where Brad Larsen sells his right. So it creates a lot of social proof. So I mean, I understand why they're doing it. You know, it's a strategy. It's a it's a great strategy strategy to get started.
Brad Larsen: Yeah, at the end of the day, though, I think you guys are still going to have your foot in the door on almost any type of an acquisition because I guess your real competition honestly is not those big acquirers. It's the the neighbors of the company who's selling, meaning that it's just like what you mentioned. It's going to be the the end market management companies that could potentially theoretically pay more than you because of the tuck end scenario. You know, we've had conversations about that to where if anybody in San Antonio wanted to sell, I mean, I would do anything I could to try and work a deal, and I would probably overpay because that means more to us because we can seriously just tuck them right into our operation and make good revenue from the very, very beginning versus if it's your foothold of a market and you're trying to get very first in the door. Like when you guys first jumped into Denver, Spencer, you can probably pick this up, too. It turns into kind of like the transition. Ok, we're here now. What now we've got to start growing organically just to survive. And it's not as easy necessarily in this scenario versus like, what if you are already there in Denver and you already had 500 units and somebody is next door to you, then you sell two hundred units? Dude, that's easy. I can write the check, I can integrate you and we're going to continue to grow organically that way. What do you think?
Spencer Sutton: Yeah, we've done both of those in Denver, and the second is far easier than getting started. Once you make that acquisition, then you really do have to turn on your marketing machine. And for us, I think it was it's really interesting because we had to start to learn the market and Denver, the Denver market's way different. So when you start going into these outside markets, it's like, wow, it's even harder than you probably thought at the very beginning. But you're right. I mean, somebody can come in, they can pay more for that tuck in, and it means more to them and it just boost their growth. And we saw that in Nashville. Like we've done some tuck ins in Nashville, and that's been incredible for us and even helped our growth. Like, it's it's it's really been been amazing to see.
Brad Larsen: Let's talk a little bit about deal structure, Matt, because we want to kind of go full circle on the acquisition game and get really deep into it. And so you find an interested purchaser because you're the purchaser, an interested buyer and you start talking to Turkey, you start asking, what's your motivation to sell? Kind of what do you want? And then you go into a letter of intent type phase where you are structuring a deal. Now, I know this is not a one size fits all, but what are you seeing out there right now? I mean, you talk in cash upfront, mostly you talking a little bit upfront, a little bit hold back. I mean, just kind of give me some generalities, a little bit just for fun discussion on some of these deal structures.
Matthew Whittaker: Yeah, it really depends on the buyer, the seller, right? You got it backwards and added to it really depends on the seller, you know, and what their risk tolerance is and what their kind of motivation is. So the way I'll explain it to them, if you're selling your business and you're willing to take on more risk, whether that's through a clawback or whether that's through seller finance, I'm willing to actually pay you more money for that business because you're you're taking on some of the risks. Some of the the risk is either risk of clients leaving or credit risk with me, by you, by you like essentially giving me a loan for some portion of your business. Now we have a lot of people that say, you know, I just want my money. Maybe they're going to invest in another deal, or maybe they want to do something else with it. And they they want all their cash up front. Well, with no clawback. And so we do those types of deals. But what we do is we also discount what we would probably pay, you know, if they took on some or all of the risk or, excuse me, some of the rest. They don't take on all the risks, but if they take. On the risk they don't take on the risk, then we're going to essentially discount that all cash offer, but we do write checks to people all the time to buy their businesses.
Brad Larsen: Ok, let's talk the multiples, right? Let's just spend a few minutes on that because that's always the giant question what are management companies selling for? So just give me a range of top line growth revenue multiple and also EBITDA profit seller, discretionary earnings, whatever the half you want to call profit. There's like four or five different terms floating around there, and we always joke about it. But talk. Top line, bottom line. Multiple windows.
Matthew Whittaker: Yeah, this is this is like black magic right here, right, like everybody's trying to think they're saying the same thing, but they generally are saying something different. So I'll just tell you the way I look at it, Brad is I don't believe you can get a true EBITDAR of a business that's, you know, call it running at a million or $2 million in revenue. I just don't I just don't think that. I think that in most cases, that owner is either doing so much. It would be hard to replace him or her or to replace him or her. It would cost a lot of money. And then when you truly get down to an EBITDA like an EBITDA that a big bank would recognize as like true EBITDA, then I just, you know, I just don't think that that's a that's a that's a fair way to assess it because at the end of the day, I don't think it's it's actually not a fair value on the business, so it's not fair to the seller and shoot. We're willing to pay more than that because what we look at is we look at it through the lens of what does it look like when we tack it on to what evenness is doing. So the so we take a multiple of revenue because what we look at is we say, Hey, we're buying this revenue and then we are going to put it into the evenness system and then what are going to be our expenses now that are associated with it.
Matthew Whittaker: So then we back into what we would, what would be what we call contribution, which is what will that essentially business once we buy it, contribute back to the corporate office, once we allocate all the expenses to it. And so that's how we come up with a value now. Sometimes a seller will say I want three times owner earnings or five times under earnings or whatever. And if we can pay them that, that's great. But we're not looking at it like that. We're basically taking it, putting it into our formula and saying, what are we willing to pay based on? And a lot of it's based on circumstances, right? Like, do we want to grow the business in that area? Do we want to be in that market? Are we already in that market so the numbers might change honestly based on that? Listen, I mean, what I tell everybody is start at about one times revenue. A lot of companies are selling in or around that. I've heard company selling for more than that recently. And but it's all about circumstances and it's all about what they've built in the value that the buyer thinks that they're getting.
Matthew Whittaker: So we can talk about what that value looks like, whether it's a brand, whether it's a person, whether it's a market they want to be in, whether they are already in that market. So there's a lot of things we're looking at that that these sellers may be just in a good spot and we're willing to pay more money to to acquire that business. Or maybe in some cases, we pay more money because the seller has some sort of, you know, you know, something they've done in their past that, you know, that might be something that would work really well at Inverness. Like we want to acquire them as a as a piece of that right or their team's really good. Like we know their teams, a great team, we know they're going to match up with what we're doing here at evenness and we want to we want to buy them because their teams. So at the end of the day, I mean, it all depends on what the buyer perceives as value and what their strategy is. And then these multiples see. See, I don't think you can just say, Hey, all all property management business are X, because they are they really are a different. They are worth different things to different buyers.
Brad Larsen: Agreed. And so let's let me couple points I want to make on the bottom line profit stuff. I mean, you use the term I hadn't heard before or hadn't heard very much, but you've got to remember we're talking about sellers discretionary earnings. So EBIT is not necessarily a true reflection of profit because when the owner is making their car payment out of the business, when the owner is paying for their insurance, when the owner is paying themselves a salary, they have all these things that are coming out of the bottom line. That really is stuff they can control. So I look at or I talk about seller discretionary earnings. What does the owner of that business control and how do they do it? Ok, that aside.
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Brad Larsen: Now, to illustrate a point effectively on what you would be willing to pay for the business. So I was talking to a colleague recently and they were looking at an acquisition in a very familiar market with them, and they were talking about how the management company only charges one, two and three. And that's it. And I'm like, whatever they want for the business, overpay for that business because you can come in, sprinkle a little magic on it at a couple of fees, you know, change a few processes, and all of a sudden you're doubling the profits because there's room to improve. Like you guys have seen rent works and there's I don't know how many more fees I can charge and get away with it, right? You guys have seen our business, but other businesses charge next to nothing and have next to no profit. And so you would take that revenue and almost pay two or three times revenue because, you know, you can get it back on the on the profit as you build it in a year or two years.
Matthew Whittaker: Totally agree. We call this buying down our multiple right. So when we go and buy and what would be perceived as overpaying for a business, we know something that somebody else doesn't know or we have something we built in value that we know we can provide using that that property management companies management agreements as the asset and we can layer on something on top of that. Perfect example of that in our business would be we have a very profitable, thriving maintenance business. So when we buy property management businesses, we we will layer on our maintenance business. And so sometimes we can we can see a property management business is making is is has X revenue. But we know when we put it into our ecosystem, it's going to be, you know, more than that revenue.
Brad Larsen: Good stuff, so once you get to the point you got the deal under contract, you get the closing know the integration part, we could spend all kinds of time talking about the integration. Probably the most nervous time you'd have is from the time you get the letter of intent through due diligence and then getting the closing because you have to do a lot of due diligence now. I will say I want to brag you up a little bit because you did a really good presentation a couple of years ago at our first con about acquisitions, and you basically walked in with the playbook and slapped it on everybody's desk and said, This is the playbook for an acquisition. You can go to my website, go to your website, excuse me in and get that or I can send it to you. And so you're very open ended about that. But to close the loop on this conversation, because now I think we've got to wake Spencer up and bring him into our conversation because he's he's just sitting around going going crazy.
Matthew Whittaker: I hope you're not going to ask him questions about integration.
Brad Larsen: No, because that's marketing. Yeah, yeah, that's boring stuff.
Matthew Whittaker: I would tell it. Integration is the boring stuff, but shoot one of the things I would say about that. And then then I'll let you talk to Spencer, and he knows more about the organic than I do. One of the unique things about buying a business is you get to closing and you feel like, Wow, I've made it. And the first business we bought in Nashville, I remember being at a gas station, we were dropped back right after closing the business. And I was like feeling this kind of wave of emotion of excitement that we had finally closed kind of our first outside of Birmingham business. And then the second emotion hit me. Oh crap, now all the work's actually begun. And so when you get too close, it's almost like running a marathon and then saying, Oh, I've got to turn around and run all the way back. Now it's like you're getting to the finish line and saying, All right, now, you've got to run back to the start line. That is what it feels like when you buy a business, especially if you your first few times through it. Now it does get easier. And as your business grows, I mean, look, Spencer will laugh. I don't I don't do anything except like, sit in on these meetings and and just listen. At this point, we've got some incredibly talented people that are closing these businesses and executing on them. But but point being integration is one of the hardest things to do.
Brad Larsen: Great because we just completed a small acquisition of a company locally. I mean, we're talking 40 units, so it wasn't wasn't giant, you know, was a cash deal. And so it's very easy to just, you know. All right. We're going to pay you cash and then we get your business or we get your your assets, which which are your property management agreements, right? Basically, your owners and your tenants and closing. We were just kind of like, OK, we finally got here now. It's like, we just want to take over everything like the owners around. There's a whole back scenario. The owner is there to help, but it's just like, OK, we'll take over everything from here and call you if we need you. Like, almost like nicely, please step aside and let us handle it. We'll screw some things up, but it's probably going to be better that way. And in the due diligence, of course, in this scenario, and the sellers were great. So, you know, if they're listening, no problem whatsoever. They're great, folks. Everything was on paper like everything, like they did not have a stitch of electronic documents at all. And so we're talking files like four inches thick with stuff 20 years in. And so it was an interesting deal. We had our team have to scan everything and we had to buy scanners. And it was it was an interesting deal.
Brad Larsen: Ok, let's transition because I've got to get Spencer into this conversation because I love talking about growth, and the acquisition side is a fun part. But you guys have done this in several, several markets where, OK, you've got the foothold now it's time to grow organically, so you're almost starting from scratch. So you have a playbook. I mean, you've done this several times over to where you're now at a market. You're now having to start from scratch. You have to put a business development person in place. You have to start creating SEO and lead generation on all that stuff. And so you've done this numerous times. So Spencer, I'd consider you the expert in this regard because a lot of folks listening, they have their one market. They have they're they're two, three, five hundred homes and they want to get a business development manager. They are the business development manager. They're the owner doing business development. So you talking about growth on the organic scale that's coming from a position of knowledge times 10. So having said that, I don't really necessarily have a starting question, but I want to hear some of your comments about, OK, you're in a new market now. You have to kind of start from scratch because you've done it over and over and over. Go ahead.
Spencer Sutton: Yeah, great. And it is. It is kind of starting from scratch. And so what Matthew and I developed, I would say probably four or five years ago as we sat down, we were talking about marketing and we just developed what we call our marketing pyramid, which has like it, builds on itself all the way up to the very top. And so the base is the foundation, and that's essentially where we start. And we don't move on to the next layer of that pyramid until the base is finished until the basis is really concrete. And so the base are things like we need to get SEO worked out for this market, right? So we just went through a brand change about a year ago, a little bit over a year ago. And so there was a lot of SEO work that had to be done. But then even when we move into new markets like the market doesn't know us, Google doesn't know that we're in these markets. And so we have a team that works on technical SEO for us. We also take over Google reviews. So we are we are big believers that Google reviews, drive leads and so we optimize our Google, my business pages. And then we also like we make it fun for our team to get Google reviews like we have awards, we throw parties, we're actually sending somebody on a trip who won one of our quarterly contests. And so we really encourage and incentivize people to ask for Google reviews. And then from there, I would
Brad Larsen: Just let me interject because we've got to talk a little bit more about that because I personally agree with you on this. The Google review thing. Whether you like it or hate it, I don't know. I mean, personally, it's kind of like I have a little bit of awkwardness with it because we know the reviews are cajoled, bought, stolen, blackmailed. I mean, you name it. People get reviews all different ways. We we incentivize our team to get reviews. You guys have done this. Everybody in the industry does it. But it's so crucial because on the SEO side, when somebody pulls up your market, property management and you want to be in the top fold, top three, top five organically. But then there's that magic little section inside of Google, where the top three in that market are shown and a lot of times is based strictly on their Google review ranking. So it's extremely important whatever you can do if you're in the campaign of organic growth, you have to get your Google reviews solid, which means you're going to beg, borrow and steal from tenets. Previously, that left you a crappy review to working with your team to get good new reviews. But the maddening part like I think we're at a four point six with like a thousand reviews or something. And the maddening part is when you get a one star review, it takes like 10 five star reviews to negate it. That's the most frustrating part because there's no middle ground, you know what I mean? So keep going on on the organic SEO growth.
Spencer Sutton: Well, yeah, I just want to say, you know, to your point, we used to we used to hate Google reviews like we really did, like five or six years ago, we were like, Oh, it's just maddening. Here's a one star review. Oh, here's another one star review. How can we answer these so that when people come to our see our Google reviews that they understand that we're trying to fix it? Or maybe it wasn't our fault or whatever, then we just said, forget that we're not going to we're not going to be timid about Google reviews anymore. We're going to ask for Google reviews. We're going to step up our service and then we're going to ask everyone that we have interaction with for Google reviews. And then when we like to your point, Brad, when we when we get a one star review, what can we do to bring that up to a four or five star? Like how how did we mess up and then what can we do to improve that? So we are, you know, we're also going to reach back out to those people and talk to them and see how we can improve those because it is very, very important
Brad Larsen: And it is a pride swallowing affair. When you have to call up a crazy, disgruntled tenant that left you a one star review or an applicant that left you a one star review and you have to ask the question, you know, what can we do to make this right? I mean, what would what would cause you to either remove this review or turn it around to a five star? What do we got to do? A lot of business owners don't necessarily want to go down that road and swallow their pride a little bit, but the other day you have to, because if you get them to do what you want, ultimately you win. No. Take that to heart.
Matthew Whittaker: Let me just say this too. We actually identified that to Brad. We were like, our math was a little bit different, but we said, Hey, for every one star review, we got to get five to make up for that one star review. And that's just to get it back to a four star, right? So what we said was whatever we pay for a five star review, if somebody can turn a one into a five star, then we're willing to pay five times that amount because essentially that's like them going out separately and getting five five star reviews, right? So we actually pay any time a one star review, and it does take guts, right? Because you're going to pick up the phone, you're going to listen to somebody who's really angry, who's going to wear you out over something, and then you're going to have to swallow your pride and humble yourself and say, Hey, look, I am happy to fix this and hope that they then turn that one star review into a five star review. But we are willing to pay five times the amount because we agree it's it's the equivalent. It's the same thing.
Brad Larsen: I think that's a genius move. I think that's an absolute genius move. I don't want people to skip over that because if you can incentivize your team to go get a five star and you pay them x x, you know, insert the number there and then they can turn around and remove or get removed a one star review. You got to pay more for that. That's a that's a great idea. I want people to really think about that and implement that in their own processes.
Spencer Sutton: You know, I was talking to one of our team members the other day and he was and he he actually won the trip that we're sending him to sending him on for the five star review contest. And I was asking him about it and he said, You know, I really just put myself in their shoes. So he was dealing with a lot of applicants, and he says, I've had people leave me reviews that don't even end up renting from us. And he said, So I'll give you an example. I had a five star review the other day when I got on the phone with somebody and they asked me, You know, what are your screening criteria? You know, I've been rejected a couple of times before, and so he started talking to them and kind of finding out their situation. And then he went to our website and was like, Well, I'm going to read you the qualifications. And he said, Really, I don't want you to pay your fifty dollars for your application fee. I would rather you save that because we would probably deny you and I don't want to take that money. So so I just want to let you know that and we wish you all the best luck, et cetera, et cetera. And he asked for a five star review, and she gave him a glowing review just because he cared enough. I say, you know, save your money, save your 50 dollars, you use it for something you need, use it for a different application. And so I think that's the type of kind of ingenuity and kind of creative thinking that you need to to get those five star reviews.
Brad Larsen: So reviews aside, I keep going on building that base of organic business development because, you know, we talked a couple of things there, but it's a campaign I want people to understand. It's not just one or two things you've got to do. It's a campaign of one getting good personnel, good marketing materials, good basic, good points of difference, having a compelling story, having a decent pricing model, having Johnny on the spot, people that can answer the phone and or email returning phone calls following up. It's amazing. If you just follow up, business will fall in your lap asking for referrals, having a campaign to where you get referrals from realtors. So I'm just spouting off on top of my head, just a bunch of different things. I'm sure I'm forgetting a couple of others. What do you think?
Spencer Sutton: Yeah, I mean, I think all of that to me, like what I was mentioning at the bottom of the pyramid is just to get our DMs on the phone with people like get them, people calling them. So we're doing all that. Then to your point, we are doing, I mean, there's a lot of content marketing that we're putting out there because we want to be thought leaders in the market. We want to. So it is it's multiple things upon multiple things, upon multiple things. Then when they they see a BDSM and a video or they see, listen to one of us on our podcast or they read an article that we just wrote, they're building. We're like, we're building this trust with them so that when they reach out and pick up that phone or they fill out that form, they feel like they already know us. And so when somebody Hunter calls them and says, Hey, I'm Hunter, whatever, just like, Hey, great, you know, I've been listening to the podcast and I'm really excited to learn more about this or I've got three properties over here or whatever the case is. I mean, it is to your point, there is a lot that goes into it and you need great people to respond and great people to follow up. And you know, for a lot of people, it's just the owner that's doing this. That was Matthew at the very, very beginning, which is why he thought he was always the best until I came on and then I sold more than he did. No, I'm kidding. But yeah, but then it's just hiring the people that actually like, take ownership of that role.
Brad Larsen: Isn't it funny how the two big conversations around the industry? A lot of times are business development managers and remote team members? Right? Acquisitions and all that stuff is fun sales. That's great stuff to talk about. But really, the blocking and tackling of business development and then running the operations is a big part of what we do now on the business development side. We always hear a lot of owners out there, they own the business and they do their own business development. Well, I discourage that at a certain level because I would think that they should focus on doing more things as an ownership level. And business development honestly is a full time gig, no matter the size at all. I mean, if you're doing one up a month or one hundred sign ups a month, I do think it's a full time gig because you can't get to 10. If you don't commit full time effort, right, you're at one a month because a fall in your lap. Ok, that's easy. Any owner can do that. They can go and sign them up on the kitchen table. But to create a steady lead flow and follow up system, you got to have a full time person. You have some experience in putting full time people in place. So talk to me about the hiring fun.
Spencer Sutton: Yeah, I mean, it is. It is fun to hire. I mean, but where we are right now, the great news is I am searching for my replacement in the sales department. So Matthew lured me in with marketing and then he said, Oh, you got sales too. And so but it's been fun with salespeople. Now we're hiring a director of sales who will focus who has an experience of building a team because our vision is and third in three years, we're going to have 30 BMWs in our markets. And yeah, so it's it's great fun. And I agree with you, Brad, like having somebody operating in a market and then expecting them to go out and win business. Something's got to give between those two. And that's what we were even talking about at our offsite at the end of the year was just like the importance of urgency to find mediums in all of our markets, even some of our smaller tertiary markets. Matthew, anything you'd add to this?
Matthew Whittaker: The only thing I would say is one of the things about us now is we we're starting to have a bunch of resources, right? So the ability to hire multiple mediums, the ability to do a bunch of different things from a marketing perspective. And so what I would tell people that are in the three hundred to five hundred house range that are just getting started is and you mentioned this earlier, Brad, is is get your block, get one thing good, right? Maybe that's SEO or that is getting your Google reviews up like work really hard and focus, focus, focus on that until it becomes a habit in your organization. And that's kind of the reason that we built that marketing pyramid like we did because we always have these ideas. Oh, let's run a radio ad or let's. Do a podcast or or let's have a conference and bring a bunch of investors in. But at the end of the day, if we have if we have a one point two star reviews on Google, nobody's going to call us even if we do bring conference in. So so what we said was, what's the most important thing we need to the blocking and tackling and to build habits around? And then what's the next most important? And we started building on that. And so that gets into, you know, focusing your resources on places where you can make a big impact that you have and you know. But but we were 300 units at one point and we had to focus our units, our excuse me, our focus, our resources kind of at the bottom of that pyramid. And so don't like listen to me and Spencer and here are 30 mediums and podcasts and think that we always had these resources. We didn't because we built this thing on a bootstrap. But the reason it's been so successful is we we allocated our focus and our money to the right places that would have the highest impact.
Spencer Sutton: I'll tell you, let me just. On top of that, Matthew, what you said is so true because in twenty fourteen what we had, we didn't have a lot of resources. We didn't have a lot of experience. But what we experienced in like building teams and bringing in tons of leads. So what we did was we were just like, Let's build out our avatars. Let's start here. Who are we selling to? Who are our clients? And then let's start creating content that helps them answer questions that answers their fears or confirms their dreams or whatever the case is, something that helps them make better decisions. And so we just start, and it really was all about hustle. So we kind of focused on that, focused on writing articles, and then we focused on building our five star reviews. And so, yeah, Matthew is 100 percent correct, just like starting with something and and building on it and taking your time.
Brad Larsen: Well, Spencer, the last 12 months, we've been kind of reduced with all the sales a lot of people are. Instead of renting their home out, they're turning on and selling. You had reluctant landlords that said they threw up the white flag and said, Heck, I'm going to sell it. What were some of the challenges that you had to overcome and any lessons learned in the last 12 months of dealing with a very tough business development market for rentals? And so maybe I'm speaking out of turn. Maybe you guys killed it with the rental market, but here we are. It was. It was a tough go last year because everybody was selling. Sure, we captured sales. We got the one time commissions. Ok, cool, great. But we obviously want to continue on a level path of having lots of homes under management. Anything that you picked up last year in the business development side from that little shift in the market that we saw with sales.
Spencer Sutton: Yeah, we still saw that there were plenty of investors in our markets who were still buying properties and they were still wanting to rent those properties. So we turned a lot of attention to investors and who wanted to buy. Even though the market, you know, maybe they were paying a little bit more more than they were 18 months ago. Twenty four months ago. But I think we saw success there. Yes, there was churn happening when tenants moved out. People were like, Man, I could sell this house, especially, I think, the the accidental landlord, the one time they were really starting to think about that a lot over the past couple of years. So but I think, you know, we we added quite a few doors, but it still did hurt. I mean, it was a very hot market.
Matthew Whittaker: So I would add on to that thinking through the lens of marketing. I mean, we made a strategic shift. Spencer, one of the things we originally created was we were focused on that accidental landlord. Remember, we had this whole conversation that there higher margin one, one house, one owner, type landlord. And then we started creating a lot of content around that person around that avatar. And we did a question, Zonas asked, and I committed to doing three hundred and sixty five videos and three hundred and sixty five days, and I told Greg Hall that I would give him five hundred dollars if I didn't do it. And ironically enough, I was in Colorado about a hundred and something days in shooting. I had already shot one hundred and something<