MANNY SAXENA – BUYING INTO THE WORLD OF COMMERCIAL SWEEPING – EP. 71
My guest on this episode is ^[redacted]. Manny grew up in India and decided he wanted to become a CEO. To prepare for the role, he attended Kellogg’s MBA program and built leadership experience at Sears and Persado. Finally, he partnered with Broadtree Partners to acquire two commercial sweeping companies called Contract Sweeping Services and Statewide Construction Sweeping in Northern California.
Manny and I talk extensively about the sweeping business, how he’s learned the ropes in the sweeping industry from the previous owners, unique businesses he came across in his search, new systems and technology he’s implemented in both companies, lessons from his time at Sears, and much more.
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Live Oak Bank – Live Oak Bank is a seasoned SBA lender focused on search funds, independent sponsors, private equity firms, and individuals looking to acquire small companies. Live Oak has closed billions of dollars in SBA financing and is actively looking to help more small company investors across the country. If you are in the process of acquiring a company or thinking about starting a search, contact Lisa Forrest or Heather Endresen directly to start a conversation or go to www.liveoakbank.com/think.
Hood & Strong, LLP – Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [redacted]
Oberle Risk Strategies – Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and Employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.
If you are under LOI, please reach out to August to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to August directly at [redacted] in sponsoring? Send me an email at [redacted] Transcript:
Do you want to share a little bit more about your search since that’s kind of the start of your journey with Contract Sweeping and some of the unique companies you’ve come across. It’s what you were talking about before, I’d love to hear just a little bit more about that if you’re willing to share.
Yeah. We’d love to do that. So as most of the listeners probably know here that there are multiple ways to go about searching. One is obviously the traditional search path which is more described by the Stanford primer, where a social comes and raises money for a duration of couple of years, searches for a company, then buys and runs those companies. The second one is self-funded searchers or search, which is a lot of people kind of use their own money to search while they’re searching and then go after investors to buy the company. I do the third path, I think, which is the (inaudible), if I might call it that.
I worked with a company called Broadtree Partners, it’s a group of previous searches who had started the company, with the idea of bringing together the resources of a larger company to help folks like myself who had a lot of operations background, but not a lot of deal experience per se. So I joined Broadtree in mid 2018 as part of a cohort, which basically meant there were about five other people who joined with me. And the idea of cohort was that if you had five other people go through the exact same experience as you do, it makes your search life a lot more enjoyable.
And as everyone who’s been through a search knows search can be pretty stressful, there’s a lot of ups and downs, one day you have a deal the other day you don’t, one day you moving to New York the other day you’re moving to San Francisco, but having five people kind of go through, it just helps you normalize some of the experiences you go through. So I thought it was a great experience working with Broadtree and the five fellow searches, if I might call them that. And I did search out of San Francisco, which I might add is probably the worst place to search because everyone expects of valuation, multiple offer revenue, and not even advocates, no one’s making profit. But jokes apart.
I mean, San Francisco area, wasn’t the best but outside San Francisco area. There were still a good number of companies and Southern California has a lot of traditional companies which are perfect candidates for a search find. And my wife worked in tech industry. So we decided that we want to stay in California at least for the time being. I came in with a very strong focus of being in California and because of my strong focusing in a geography, I did not have the luxury of choosing my industry as well, which I always feel like if you get the best industry and in the geography you’re living in, I think that’s a bonus, but it’s hard to get.
To have all your criteria met as well as geography as well as industry. So ended up going to my search process, reaching out to multiple different industries. Initially I was a little bit skeptical, but as time went on, I really kind of enjoy that because you end up meeting all these random type of industries or companies where you realize, as I said before, people make a lot of money doing random stuff. Every now and then you meet companies that you’d be like, “Huh, this is pretty interesting. I bet I could do it.” But obviously, I couldn’t have imagined that, or even shortlisted an industry that would have this company fit into those industry buckets. I gave you an example earlier.
I ran into a company, 10 million revenue, all that it did was screws, different types of screws, and they made $10 million doing that, which was just crazy to me, mind boggling to me that there would be a company that just manufactured screws. So I ended up going through a lot of different companies and had a few LOIs, a couple of deals ended up falling apart at the altar, which was pretty heartbreaking, but I ended up closing two businesses in October of last year.
One is called Contract Sweeping Services, the other business is called Statewide Construction Sweeping, and I’ve been running the businesses for the past, gosh, it’d been what, eight months and couldn’t be happier. And yeah. Now here to see how best I could give back to the social community which has been so great through my search process and help them out however I can, because there’s a lot of things that you need to learn as you go through the search process. And a lot of these mistakes have already been made by searchers like myself. So I just wanted to see how I can do that, give back to the searchers.
Can you share about your background prior to searching as well?
I actually grew up in India, and engineer by background. Realized pretty early on in my professional life that I was more of a business guy than an engineer. Do decided to pursue my business education here in the U.S. Moved to the U.S. in 2012 for my MBA, went to Kellogg School of Management up at Northwestern University in Evanston, Illinois. And I did my two year stint there, and then that’s really when I came to know about the search process and search life. I did not have any business background more specifically I did not have any business background in the U.S., so really thought I wanted to get some experience under my belt before I start managing or running a $10 million revenue, 100 people organization.
So I wanted to go back to general management, which is where I really thought I would add the most value and I love being with and getting people excited towards a common vision and goal. So ended up joining the place when I thought would give me the biggest amount of challenges and a great experience from a business standpoint was I joined the turnaround team at Sears, which was pretty interesting because this was a leadership program. So they took you from one business unit to the other, so you’d be in inventory once the next day you’d be in pricing, the third day you’d be in marketing.
Spent a good three, three and a half years there, ended up being the senior director of marketing of all their underperforming stores, which was again, a great challenge because if you hadn’t read the news then, a lot of stores were underperforming for Sears. So ended up managing a good number of people there, a large budget, work directly in constant touch with the CEO, Eddie Lampert. While I was there, ended up having the good fortune of meeting a lot of brilliant like leaders there, made my bones there really, and I wanted business experience I got baptized by fire basically.
So I spent a good three, three and a half years, and I started to long for something more. I thought about doing my search then, but I ended up getting another offer from one of our vendors, this was a complete polar opposite from Sears. This was a series C startup funded by Goldman Sachs. This was a company that basically told you through data what you should be writing on your marketing copy, AI machine learning based company, thought that was really interesting. They wanted me to do sales for them, and I had never done sales. I was a Brown kid in the U.S. trying to make sense of my accent at that point to most people I spoke, but I thought this opportunity was great. I always taught sales is a underrepresented subject in most education institutions.
So I ended up taking the challenge on and spend a year building up their sales team, talking to fortune 500 clients. And at that point, after a year, I did realize that I had the operations background, I had the sales and marketing background, managed a team by then. So I felt like it was the right time for me to jump into search. And that’s when I started raising my own fund, actually. And then at that point I meant Broadtree folks and they must’ve seen something to bring me on board. Yeah. So that’s what I did before joining Broadtree
Your serious experience must’ve been really interesting. My wife and I, we just moved to Omaha for her PT school, and we were driving to the store and there’s this shopping mall in Omaha with a sign for Sears. And then you look over and it’s this huge construction site with no more building, and it’s just piles of dirt and gravel and those other stuff. Can you talk about some of the challenges that you had got to experience at Sears and then perhaps some of the lessons you pulled from that experience.
There were no depth of business challenges at Sears. This was a company that was really the shining beacon of success in the early ’90s. They used to be bigger than Walmart back in the day. Nothing that they did could ever fail, just because of the sheer scale and sheer size, kind of like the Amazon of today. And then obviously as time changed, as technology became more and more prevalent, as companies like Amazon came, I think they just rested on the laurels a little bit too long without changing the way they did business.
I think one of the things that kind of for me was eye opening while I was there was, everyone knew what Amazon was doing long before today, or even then. But I think the biggest issue was how do you repurpose the assets that you have in the business, which were in those in Sears cases, the number of stores that they have, the physical footprint that they had, which was massive by the way, and repurpose that to an online only business.
So you end up being in a state where a lot of companies and industries kind of go through that where you want to be close to what your asset base is and not compete with somebody else who is more nimble and whose entire organization is kind of focused towards something that their core strategy is, in that case this businesses end up being a confused strategy business, in my opinion and it’s hard for them to either be that or be good at what they do. And that’s what happened with Sears to be honest. Kmart bought Sears which is another unsuccessful company buying this company, Sears and those companies together, they didn’t really have a winning formula.
Another kind of jarring thing for me was at Sears, like many other companies I guess, but they had business units, multiple business units and each with their own P&L, which was great because you’re trying to maximize the margin for the company and you want accountability, but because you did not have a unified strategy which each of the business units adhere to, it became kind of more of a changing the chairs in a Titanic type of situation, where people were so concerned about their own P&L that they never really worried about the overall strategy. I’ll give you an example, like food and drugs.
If that’s something that I do as a grocery store, that’s something that you should use to pull more people in the store. Profit should not be the main criteria. The goal should be for Sears and Kmart, that people come in for the milk or for the grocery and then they buy an apparel while they’re out there so that you make up your margin in apparel. But there wasn’t really a mechanism for the company to understand that piece either. Those couple of things was pretty interesting to me to understand that somebody really needs to be thinking about those things versus hiring a bunch of smart people and hoping that they will kind of work together because incentives is a big thing, as we all know, and they work towards their own end, people tend to work towards their own incentives.
Those two things I thought just from a company perspective, pretty interesting that I always kind of to remember to go back and as I run my business right now, I tend to think about these things because I know no one else’s because you’re kind of worried about your own kind of three by three, but those two things were really interesting for me. You’re having the use of repurposing the assets you have towards what you define as the unified strategy, and the second thing is figuring out incentives and having the work on the overall strategy and all the different kind of movements in a company to be working towards that unified strategy.
Can you talk about the two companies that you acquired and how they relate to each other. And then what would you say is the unified strategy now?
The two companies we bought were Contract Sweeping Services and Statewide Construction, Sweeping. Contract Sweeping Services, really we do sweeping for municipalities. So if you had a name in Omaha where you live, but if you have parking signs for when the sweepers will arrive to sweep the streets and you need to move your cars for that, so that’s pretty much what we do. So we have long-standing contracts with either the city itself or garbage companies or waste hauling companies that have the franchise contract and we are just part of their franchise contract. And these contracts can run between three to 15 years long. And it’s more like clockwork.
They give you the map and the exact schedule of what the sweeping needs to look like and you basically follow that every day, day in day out. And you basically build the exact same amount of money every month to every customer. So it’s a pretty good example of what you and I hear a lot in this world, which is recurring revenue. The second business we bought is called Statewide Construction Sweeping. They are also in the sweeping world, but they are more involved in heavy construction type of work where you need regular talily mandated for you to have a sweeper in a construction yard because of the pollution, the stormwater runoff can actually pollute your water table.
So you need these sweepers onsite for any construction yard. Most of our customers are general contractors who are building roads and highways. So again, coming from the businesses kind of essential because the roads and highways need to be maintained every year, they are basically mandated to have a sweeper on site, otherwise they can’t operate. Literally we’ve had instances where they don’t have a sweeper the entire construction site needs to be shut down.
So having those kinds of interesting kind of dynamics makes this business extremely resilient, COVID proof and high degree of recurring revenue and repeat business, which is obviously great for any private equity/search type deal that you want to do. You talked about the unified strategy. I think unified strategy is obviously this is a confluence of man machine and processes like most businesses. And I think in this case, since we have such a strong hold basically with our customers and with either a contract or relationship, it’s hard to displace us, but at the same time, it’s harder to grow as well because our competition also has the same kind of parameters.
So one of the ways you want to grow is by expanding to different geographies where we don’t have that customer base already built in, either organically or inorganically. We’ve done a lot of work on understanding the roll-up nature of this business and we know there’s a company out East that have done this successfully called Sweeping Corporation of America. And we want to kind of replicate that model on the West Coast, by bringing in more companies in the fold and bringing in a lot more just structure and strength to our home base so that we are able to kind of double up that expansion plan through opening up offices or acquiring new businesses more seamlessly.
Can you share a little bit of some of the learnings that you’ve been learning from the previous two owners about the sweeping world and working with municipalities and how contracts work and all the man machine of the endeavor.
Obviously I came in with basically no knowledge about the sweeping world and it’s a pretty niche industry. One thing that I do recommend to most searches is hoping to have, or have a good relationship with your sellers, especially if you’re going in an industry where there’s just a bigger learning curve than most other industries. And this was that industry. There were two sellers, both those sellers are in their 50s, they were pretty young and they’ve rolled equity. So they had a natural reason and this incentive to help me, but having them on my side was a big help. I think in this world of municipalities sweeping, I think it’s about having to run the train and keep the trains on time.
That’s literally your job, which basically means that the machine should be in the right conditions, you should not be spending a lot of money on overtime. You should not be spending a lot of money on repair and maintenance, the brooms and the tires, just keeping a solid kind of creating a solid KPI driven system where you’re able to monitor if things are going south, you know you have a good kind of just at once heads up. The owners were really good at just the relationship they had with the equipment manufacturer, the vendors, some of the customers was just great and handy for me to come in.
And I think me coming in, we just created a rigorous financial system where all the different managers were empowered to make their own decision and they were kept accountable for their own P&L, was just huge. In this line of work I think for municipalities, this work can have a lot of nuisance value where there are all these residents who let’s say their side of the street doesn’t get swept, which happens all the time by the way, and there’s a lot of funny stories, which we’ll talk about some other day, but they just call the city directly and say, “Hey, the sweeper has not shown up,” or “The super came and he goes really fast, or “She wouldn’t do the job right,” or whatever it might be, and they call the city officials sometimes even the mayor of the city.
So it’s a lot of nuisance for not a lot of work. So your customer service needs to be top-notch. The owners had already created that culture, which was great to have, because that’s a culture that’s hard to change in a company. So even any municipality customer meant they have an issue, even when it’s small, as small as like, “Hey, you missed a corner,” and they email our staff. We have one email address that any customer sends out an email complaint to, or issue to, go to that one email and that email is shared with the entire company, including myself.
So I see all the customer complaints and we try and reply within 30 minutes and solve the issue within four hours. That’s our goal, which is in the municipality world without obviously going into too much detail, that’s the best customer service that they can ever hope to achieve. And that’s why our resign rate or when we try and rebate a contract is really high. So unless we are extremely high priced, they do want to stick with us because we solved their nuisance value problem and do a great job.
You said wouldn’t share many of those stories, or just at least leave them for another day. Is there at least one you might be able to share that’s most notable for you?
There’s this lady in one of the cities we sweep that is pretty, let’s put it in these words, she’s pretty attuned to when and at what time does our sweeper show up in her city for example. Every day, every second day, she has a comment on how we can improve the services, sometimes she copies the mirror, this is always fun to work around. And everyone in the city and the council now kind of know about that lady, but she is looking out for her neighborhood, you can’t really dock her for that, but it’s pretty hilarious every third day when we see her email and you’re just like, “Okay.”
So what we have done actually is created almost, what do you even call it, hotspots for different cities where users instruct the driver to go that extra mile in helping the streets look clean and whatever the case might be. That happens in most businesses and this is ours and there are bigger problems that you can have. So we really, we just like to sometimes just think about this and make light of the situation and get the work done.
Sounds like her frequent communication actually worked and is getting a nicer street. Have you ever met her before or offer to take her out to lunch or show her around the company and?
Yes, we have. So we call her, our regional management has been in touch with this particular lady multiple times. And we actually sent out chocolates to her for the past holidays and she was ecstatic about that. But unfortunately that has not reduced the number of times she writes to us. So we’ll see what we need to do this year.
That’s wonderful. One thing we talked about previously in our call was adding different technology or software tools to your company, you mentioned GPS tracking, being one of them. Are there are a few different tools or installations of new systems in your company that you might be able to share a little bit about?
I think one of the things that many small businesses lack is the addition of technology systems, which a lot of times is because usually the owners, it is the in our world are older, I’m guessing that has some relation to it. And then the other thing is just, it’s a lot of work to change a paper system or an existing physical system to a technology based system because people find it hard to change their practices. We talk about the fleet management software, which is basically you put these small pieces of hardware in each of our trucks and then basically the next day, you know exactly at what point, at this places are these trucks, and you also know not only that you can also know when was the broom engaged in these trucks, when was the water started spraying on the trucks, is the engine turned on versus off.
You can set up multiple rules where let’s say the sweeper goes beyond 10 miles an hour, it pings you back to the dispatcher. Or if there is some issue with the machine, there’s a trouble, we call it trouble coach, it pops up the trouble coach, this is wrong with the machine. So it’s been absolutely phenomenal for us. Even a lot of times, there is a question from the cities on the contract sweeping side that, “Hey, did you sweep this area?”
So we just pull up the map because you can go back at where the trucks have been, we send them a screenshot of the map itself, and basically it tells you exactly where the trucks have been, that basically lets you know, what speed, whether the broom was engaged or not, that basically tells you whether we did our job as per the contract or not, and that is immensely beneficial for us. We’ve also started to put in a lot more modules to the system. One of the things that you’re doing is called DVIR, which is basically daily vehicle inspection report. So earlier we had a paper-based system where the mechanics or the drivers would come in and write stuff that’s wrong with the equipment and leave it on the table at the mechanic.
The mechanic would come in the next day and look at the stuff that’s wrong and try to repair the truck. Sometimes drivers would call the mechanic, tell them the driver would note something down, obviously forgets half the things. There was a lot of miscommunication, there was a lot of issues to say the least. A lot of times the trucks were not repaired and the driver would come in and take the truck and get to a construction site and then realize the truck’s not been fixed. So then there’s a lot of moments like that. So we started putting a system called the DVIRs where the driver would fill in electronically on a cell phone, just go through a checklist of things that he has to look at, and then also look at things that he needed mechanics attention’s on.
So then the mechanics, it pops up the same instant as to a truck 6072 has this issue the next day they can come in and actually once they are done with it, they can record the cost and parts that have gone to repair the truck. And also when they’re done, they can shoot the notification to the driver, “Hey, your truck has been taken care of.” So that was pretty interesting, using preventive maintenance now to that system as well, where for each vehicle we have a preventive maintenance schedule that we are running, which is immensely beneficial because other time it was just a mechanic would just look at a truck and be like, “Oh, it’s been a while since I’ve done a preventive maintenance on this truck,” and that was not the right way to do it either.
Those things have helped us immensely. We’re doing other things like we just brought on a software system called ER collet where basically it’s accounts receivable collection software, where you can automate the readouts to the customers periodically depending on how long or how behind they are on payments. Our account receivables has gone down from 2 million to 1.2, $1.3 million in six months, that’s $800,000 of savings, real dollar savings in six months. We put together basically a payable systems as well called Bill.com
It’s a company I think based out of the Bay Area, where people are able to record their costs as they incur them in the company, the credit cards route to that, payments can be made directly through that to the vendors. It links to QuickBooks directly, which is our accounting system. So you have one software for that as well and that has been great. Now we’re starting to get into the CRM. We don’t have a CRM system. So if I needed to know what’s the CPI increase for example, in the City of Palo Alto contract, the stuff that I have to do is literally pull up the contract and there’s 90 pages in the contract and try and find where CPI was covered.
So we need a CRM system to say the least. So we’ve been talking with Salesforce and they’ll help us with our billing system as well, which was outdated. So we are now embarking on a project with Salesforce and their partners to construct our CLM system and then our billing system, which talks to QuickBooks. So there are all these things that they’re doing. I think those things have been immensely helpful, and those are your lower hanging fruits.
Those are the things that you have to project manage them. It’s a little bit hard to bring it on, but once it’s operational can drive benefit, even if it’s time-saver or letting go of the archaic processes that people had to go through to get things done. And I’m always on the lookout for more stuff like that and can talk enough about those things, especially in a small company setting.
Yeah. Sounds like you’ve gone through quite a few new system implementations. Is there a few lessons you have for doing a good job, implementing a new system into your company that you perhaps got better at as you had deployed new system number one, two or three?
I’ve definitely learned some lessons. The biggest one being this cannot be a side project, especially in a smaller company this has to be driven by you. So you have to hold people responsible versus trusting people to do the right thing because the deeper thing that you’re trying to change here is behavior. And unless there’s a big incentive to change behavior, it’s hard to do that. Especially like I talked about the fleet management software, our mechanic has never used a computer before, he’s been with the company 40 years, you can’t ask him to leave, obviously, he’s asset to the business.
You can’t ask him to lead without understanding technology because he has five mechanics at any time. So there’s always, these kind of figured out ways to bring people along in that process. So one thing we’ve done with them is we literally, we have another person who kind of the coordinator between the fleet and the drivers. So we made that position who’ll basically help the mechanics and both the drivers kind of be on the same page to be able to leverage this technology because it was so important for us to be one with this.
And we have weekly sit downs with the mechanic, we have fleet meeting now, we never had a feed meeting before, and I’m holding people responsible by asking them to share the screen of the platform that we were working on and talk about it on the platform versus just calling it out. So things like that has to be done. And it’s just a thing that takes a long time to change, but once people do realize that there is tangible benefits to it, and the world is moving on whether you like it or not, it helps. So those are some of the things I definitely found that I’ve been pretty helpful.
The other thing I would add is also having people on your team who are good at understanding and are assessing what’s a good fit for our business. So for me I have a chief of staff, who’s a young guy, who was at work as an intern with me at Broadtree and is now my chief of staff. He’s great with technology. And he’s very interested in bringing on new stuff to the business. And he is a great conduit between our operations team and the new softwares and assessing different things that you bring on to the company, otherwise I would have to do that job myself as well.
It’s good to have a champion of the technology as well, which could be you, or it could be somebody else in the business who everyone can reach out if they have questions and consult our problems and whatnot. So those are some of the learnings that I’ve had, but the learnings have well worth the benefits we’re getting out of this technology push.
Yeah. It sounds like a lot of your cost centers are starting to become a little bit easier to manage or perhaps even going down, like you said, with AR. I’d be curious on top line you talked about expanding to new geographies as one of your best ways of growing, but are there other ways beyond just expanding to new territory that you could grow revenue perhaps? Are there any upsells type contracts you can have with cities or any additional services you can provide or anything like that?
I mean, with cities it’s tough because it’s part of our RFP that they bring out and you have the exact scope kind of laid out. So with cities, it’s a little bit tougher, but what we’re trying to do is try to expand our relationship with garbage companies, waste holding companies like we do with City of Stockton, that’s a big contract for us that we have. We don’t work directly with the city, but we work with Waste Management and Republic Services. Those are big companies that have 10, 15, 20 years contract and we are a subcontractor to those companies.
So what we’re trying to do now is to expand that relationship, to get us into sweeping in more cities and we’ve already got two major contracts through that relationship that we’re starting later this year. The good thing with that is since they already have a pre-negotiated franchise agreement, which is usually at least 12 years if not more, sometimes 20 years in many cases. So they have done all that heavy lifting for you, working with the city, and then you just basically work with them, and if you give them great service like we do, they tend not to push us too hard for lost dollars that they could squeeze out of us because we are a very small component of their franchise agreement.
So their franchise agreement could be $50 million, 100 million dollars, our contract with could be a million dollars for them. So that’s one thing that we are focusing on has given us some more stuff that we can upsell to the Contracts Sweeping world. On the Statewide side, I think there is a lot of scope for us to just organically grow our business. So that’s why I talked about the CRM system. We’ve never across both companies have had a sales person. So we are now in the market to hire a salesperson who calls the manufacturing yards or ports or parking lots or HOAs because there’s a lot of sweeping needed for those types of institutions, so those types of places, establishments as well.
So that’s what we’re trying to focus on in the coming months. But again, the good thing of these businesses is since the rest of the business is so stable, there’s not a lot of stress to like, “Hey, I need to grow today. I need to go today.” You can take your time a little bit with that because word of mouth also brings you enough more businesses and there are all these bids coming out from these cities that we recently won, two major contract city of Corona down south and City of Hesperia.
That loan was a million dollars between the two proximately for that we have now opened up an office in Southern California, I’ll be down there next week, opening up an office down there. There’s a lot of organic growth happening like that. You just got to keep your eyes open. And then on the other stuff where you can go out more proactively, you need to put in the system which we are doing from a CRM perspective and then bring in a Salesforce and to kind of do sales for us.
What are the keys to winning a new contract with the city?
Unfortunately, a lot of it does boil down to cost or price, but since this industry as we understand is a very, very fragmented industry. So we are the largest player in California already, one of the largest if not the largest. And you can imagine the industry is billions of dollars worth. We are one of the largest in California. So 90% approximately of the companies in this industry have less than 10 pieces of equipment. So when a big city like City of Stockton, where you might need 14 sweepers, there’s only a handful of company that can actually bid for that contract.
So City of Palo Alto is a city that we sweep. We were the only bidder for that contract because it’s so big. So scale definitely helps you and that’s why we talk about the role of strategy being the bidding strategy in this space. And then a lot of times what I’ve seen in the recent bids that we’ve done, where we were not the lowest bid or there’s somebody else who bid, but you still awarded the contract because of our customer service and quality, and also per local presence. We have two offices in the Northern California region. I think that was definitely something that was interesting for me to know that they were not looking for, even though we were much more expensive than the other bidder, we were given those contracts.
So now I think municipalities, especially in the sweeping world are starting to realize more and more that doesn’t always have to be about the bottom dollar. That’s pretty much from a Contract perspective. On a Statewide perspective, we have an hourly rate and we are increasing our prices because of you getting better and better quality and service to our customers. And we basically have more customers pay that price on an hourly basis for every job we do.
If you think of some of the different roll-up candidates, what would you look for a good candidate? Do you look for similar equipment? Do you look for route density, somethings within your region? What kinds of things make sense to add onto your current company?
I think one of the things that I look at deeply is just the brand of the company. If I’m standing for quality, if I’m standing for better equipment, if I’m standing for great people and enhanced customer service, I don’t want to go buy a company, because in this space, the quality can be huge, the variance could be huge because you could buy a 30 year old truck with a guy, father and a son running a business. The father gets sick and then there’s no truck to companies like us that take this pretty seriously. So I think that’s a kind of cliche thing to say, but that’s definitely something I’m looking at.
The other thing I’m looking at is also to your point, either in our geography, which there are very few companies because we kind of pretty much on the Northern California market or places where we want to be, because it’s much easier to buy than set up a shop. We’ve had to set up shop in Southern California. It comes with a lot of pains and we’re trying to do that. But if you could buy a company down there, that’d be huge for us. The other thing we look at obviously is the fleet. Fleet is huge. There’s a lot of regulations in the state of California. If it’s all the trucks it’s a high capex business for us.
So you don’t want to be looking, buying companies and then spending millions of dollars in replacing their fleet. And the last thing I look at is people. Any business that I buy, we don’t have a deal origination team. We don’t have a company integration team. The company that we buy, they have to do the legwork of integrating the company along with the existing people we have. So we’re looking at a couple of companies pretty seriously right now. And on both those companies, the people are just great and I would love for them to, and they both agreed on sticking on with the company and helping the company grow further and take on leadership positions within the company.
So those are some of the things that you look at. Obviously I’m not talking about all your usual suspects as to what the recurrent revenue is, whether it is going up or not down margin, things like that. I’m not talking about. Those are kind of obvious things you look at, those things that I hadn’t mentioned are more kind of just more subtle, more quality are the things that we look at.
What makes you the most excited for the next year?
I think it would be the things that I’ve talked about like opening the Southern California office. There’s a lot of work in Southern California that we can potentially go after. And then hopefully within the next one year, we would have acquired at least one if not two companies, and then being able to expand the number of offices that we have, expand the scale, which helps with the variety of things in our business. And maybe go out of California and see if we can go to Arizona and Nevada, that could be pretty interesting as well.
So those are some of the things that I would love for us to have done. And then. I do want to set up a solid foundation. We are working a lot on that, IT systems as part of that, hiring the right kind of people, having a CFO, we don’t have a CFO yet, having the right structure for the regional management. Basically being able to come up with the basic building blocks of growth is what we’re trying to build up in the next few months to a year.
Moving into some closing questions. What class would you teach in college if you could teach about any subject you want?
That’s a pretty interesting question. I thought about it for a second when you had asked to send those over. The thing that I would be most passionate about, I’m a pretty heavy engineering guy, so I love physics, chemistry and maths, but I think that has already been taught pretty well in most schools. The thing that I don’t think is being taught as well here in the U.S. or back in India is really financial literacy. I feel like that’s something that every person guaranteed would need in their lives. You may not need geometry, but you would definitely need a financial literacy to some extent, even if you’re making $20,000 a year or you’re making a million dollars a year, you would still need that.
And I think it’s very, very underserved and it’s definitely something that I would love to teach because I’m passionate about that. I’m passionate about making people financially independent, passionate about making people realize that, “Hey, the $6 Starbucks coffee cup that you just bought, if you could invest that in a S&P 500 index fund every day of your life, how much would that end up being, things like that are pretty eyeopening. I think people know that if you tell them they probably know this, but the benefits of keeping people disciplined and reaping the rewards through that would be pretty rewarding for me as a teacher. So I’d love to do that.
What belief do you think you’ve changed your mind on the most that you’ve used to hold strongly?
I think that one was definitely, again, I came in to the sciences and engineering, math, physics, chemistry, I valued IQ to be a lot. You can solve equations or you’re just so fast in math or as medic or whatever the case might be, but as I’ve grown in life, as I’ve taken on more leadership positions, if you like your EQ be important in most jobs I’d say than your IQ, whether it’s anything in sales or marketing or HR, or you’re running a business, I use my EQ way more than I’ve used my IQ to be honest in running a business.
So I definitely feel like that’s something that came as a not surprise, but came as a realization. And I’ve actively tried to invest in making me a better leader through developing my EQ across different domains and ways I interact with people. So I definitely feel like that’s something that I didn’t really appreciate as much growing up in India, as I do here working and doing my job here in the U.S.
How are you investing in developing a better EQ?
There’s a lot. How much time have you gotten for that? I think the core of that is understanding or just being patient and listening, I think that’s huge. If I had to give one tip is to improve EQ is just to listen more and then also invest in yourself where you can be patient and you can be empathetic through working on your inner self more than your outer self, which is again a pretty loaded phrase. But things like meditation, things like taking a break and just observing your breath for a few minutes, slow, whatever you’re doing slow that down a lot, break down bigger problems into smaller problems are some of the things you do to make yourself much more better leader and having a better EQ than IQ. Those will be some of the things that you’re doing and then just being introspective.
If a situation does go bad, you kind of look at it later and think about how you’re going to react indifferently and how the other person felt when you said something, being open for feedback when somebody is giving feedback, but again, to be introspective, as it comes back to you being patient and listening, that’s kind of the core of it all. I know some there was one of the things I’ve done repeatedly for many years now that I feel like from an ROI perspective, coming back to business has given the biggest bang for my back in terms of improving myself versus the 10, accounting and finance classes I’ve had over the years.
What’s the best business you’ve ever seen?
There’re are many businesses I’ve seen which are pretty interesting. I like my business a lot as well. But there’s some businesses where you’re like, “I don’t know how it will fail,” like Amazon and Salesforce are some prime examples. But if you talk about a small business… I was into the security businesses a lot, companies that provided security solutions to different customers. I saw one company that did the whole security system for BEP, I think it’s called Bureau of Engraving and Printing, basically the place where they print money. So they did basically the security infrastructure for that. And that runs 24/7, It doesn’t stop at night or anything.
And all the security team is kind of trained on that system. And it was done in the ’80s or ’90s, the company that did it really understood what they did. So every time they have to upgrade the system, they have to bring in that company to fix it. And if they ever had to change it, they would literally have to rip out cards or whatever it might be in the BEP, place where they print money, the Mint. So it was a pretty sticky business to say the least, I’d say. It was a lot of money. I think it was millions of dollars worth of contract. They obviously had a concentration problem, but if you had to buy a business with a concentration problem, that would be it. That was phenomenal because they had the same contract from the ’80s till now and they’ve obviously made millions of dollars to that contract.
So is there a reason you didn’t buy it?
I think there’re other things that kind of did not go through but that’s and price conservation perspective and things like that, that’s why we did end up buying it. And that was a business much better fit for a strategic than a lone soldier, I think. But it was a phenomenal business model I would love to have rules like that.
Yeah. Sure sounds like it.
I bought the second best business where I have 12 year contract with the City of Stockton where I just got to sweep the exact same street multiple times in a year and just make sure the machines and drivers are working in time. That’s all I got to do.
Yeah. You definitely worked out. Well, thank you so much, Manny for coming on the podcast. It has been a lot of fun to have you and learn about street sweeping, which is a business I’ve not had in the show before, so this has been a lot of fun. Thanks for sharing a little bit.
Now, thank you so much. And Alex, I’m sure we’ve talked about this before, but I think this is definitely a great platform for people to come and share ideas about an industry. And I’m going to say industry is the small business world, not just sweeping or something else, which there’s not a lot of press or coverage of this industry. And I think there is as you know there are trillions of dollars of wealth that is going to be transferred from the baby boomers to the next generation. So there’s a lot of opportunity here and not a lot of eyeballs. I’m glad you’re doing this and thanks and for having me on your podcast.