TIMI OKAH - KINGSWAY'S FIRST ACQUISITION IN CEO ACCELERATOR PROGRAM - EP.91

My guest in this episode is Timi Okah. Timi is the first CEO in Kingsway Financial CEO Accelerator Program, having acquired an HR and accounting business called the Ravix group in October this year of[redacted]There’s several interesting wrinkles within this search model. One of the most interesting being that Kingsway is a public company and Ravix was acquired as a subsidiary of Kingsway. On top of this, Kingsway has significant NOLs or net operating losses on their books, which offers a unique tax opportunity at Timi and Ravix.

Over the course of this episode, Timi and I talk about his engineering background and switching to business, choosing Kingsway’s program, pros and cons of buying on behalf of a public company, some nuances of working with public shareholders, and what he’s excited to build within Ravix over the coming years. Enjoy.


Think Like an Owner Sponsors

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:

It’s good to see you, Timi. Thanks for coming on the podcast. It’s exciting as I was chatting with a friend of mine who showed me the press release of Kingsway financial with their first CEO, because it was you. And I know we chatted before, so I was excited to chat a little bit more about the program and your acquisition and all that I would love to hear. First of all, what was your career background? And how’d you get to Kingsway and what made you choose this program?

Certainly. And thanks for having me on. I’m a big fan of the show. So glad to be doing an episode with you. So prior to starting Kingsway, I started my career in engineering. I went to Stanford university, I did electrical engineering for my undergrad masters and was fairly technically focused in the early part of my career. I spent two years working at Intel doing some chip design. And then following that switch to software was at Salesforce for a few years, doing backend software design, but fairly early on as an engineer, I knew that wasn’t gonna be the terminal career for me. I started thinking about other options and the attractive option was business school because optionality, I knew it would be a great way to do a career switch. So I applied to business school. I went to HBS with the attention of going to consulting and at the time it was what I thought would be a long term career.

One of the things consulting does, I think very well, maybe better than any industry is marketing. So it just seemed like there couldn’t be a better profession that typically consulted in it, you know, wanted some of these big firms, but obviously the truth is I didn’t quite mix there. So after doing my internship summer before graduating, I was thinking, all right, what’s gonna be the thing after consulting. And like happenstance ended up taking a course at HBS called Financial Management of Small Firms. It’s locally referred to as the search fund course. I didn’t actually know what it was about at the time I took it. I thought it was about running your parents’ small business or something like that. I was introduced to the concept of being a young MBA, going out, raising money and having someone back you to buy business. And I thought, Hey, this is pretty compelling.

This is something that I probably would like to do. But coming from a pure technical background, I didn’t really feel like I was ready at that moment to just dive in. So I decided to go to McKinsey, do a couple years of quote unquote training, I guess, just get the survey of the business landscape. And then after that decided, you know, it was for me to leave and I began my journey into search sort of the same way most people did. I made an account on Search Funder. That’s where I think I first heard about your podcast. I think you made a couple posts there when you did an episode. So discovered, think like remember that way. And then I started seeing, well, who are the active investors in search funds? So you know, who are the search funds and who are their investors and you pretty quickly come across the same sort of list of let’s call it 40 or 50 people who seem to back 80% of search funds.

And so I began my efforts looking to get myself funded by reaching out to those folks. I came across Kingsway, I think they had a posting on our jobs board. And it wasn’t quite clear exactly what it was. It was a little vague. I couldn’t tell if it was a search fund thing or is the more of the Alpine investors, CTO or CIT placement type situation. And so I emailed them, and they got back to me and I found out, Hey, this is a sponsored search fund opportunity. And actually it’s within the confines of a publicly traded holding company. I thought, okay, that’s pretty cool. And so I had two options in front of me. One of them was I can go talk to 50 or 16 more people and try to get 20 to 30 of them to back me.

Or I can just really focus on this one, single sponsor in front of me and just put my eggs in that basket and focus on converting that offer. And so that’s when I did. It was a pretty straightforward process, basically interviewing things of that nature. And once I got the offer to join as the first person in their sort of inaugural class of the CEO accelerator program, as we call it, I decided this is a great opportunity for a lot of reasons I can get into later. But that’s how I started my foray into search.

Doubling back just a little bit, what made you wanna shift from engineering to business?

In engineering? I think at the beginning of your career, they tell you, Hey, there are two routes you can take here. The first one is you can become a technical expert. So you’re gonna be more or less your whole career.

You’re gonna get really deep into the weeds of whatever technical thing you’re doing. And it’s all about specialization. And even within like two years at Intel, I was working on the regulator for the power delivery system on the analog fortune of the chip. And so you’re already into this ridiculously small box when you start. I just kind of felt like I can’t just focus on one or two small things forever. It’s not the path for me. The other path was, can I be a fund manager. And I kind of looked at that if I became a manager and it’s really a little bit more a people manager. And so you end up helping people’s careers, managing team dynamics, things of that nature. I think it is great and definitely needed, but it wasn’t something that I particularly wanted to do either.

I think I wanted something that was a little bit more exciting. And so that actually led me to start thinking about business school with consulting so when I was an undergrad at Stanford, a lot of folks went into consulting and I heard about it. It sounded cool, but at the time I was really heads down in my problem sets and trying to do this engineering thing. And so I said, let me revisit that a little bit. And that’s kind of how I said, all right, not engineering for me, but I think business is what’s gonna be next.

Gotcha. And your actual search process, was it pretty similar to some of your peers who had raised traditional search funds or perhaps even were going the self-funded route? In what ways was it similar or different?

Yeah, that’s a good question. And I think it was similar in some ways, and I would say different in others and maybe start with where it differs. As I mentioned, the typical search funds. Isn’t most people, you know, this too sharp, probably aware you’re gonna raise, it’s called $500,000 for about two years. And you’re typically gonna have anywhere from, let’s say 15 to 30 people who are gonna give you 10 to $20,000 to fund the units, to comprise your search. And that’s gonna fund all of your deal expenses, your salary, travel, et cetera, for the roughly two years while you’re doing your search. And at that point in time, once you’re looking to sort of make an acquisition, you go back to those investors and you say, Hey, I found something nice. Are you interested in investing? And they basically have the first right of refusal.

And if they don’t fully fund your investment, you’re able to kind of fill other places and get that equity. So in my case, I had a single sponsor Kingsway Financial Services, and they are a publicly traded holding company. I joined Kingsway as an employee. So I didn’t actually raise a fixed amount of money right there wasn’t a dollar amount. Somewhere that every day I was working was kind of winding down to zero and I’m up, it gets a shot clock. So that’s one of the differences. And then also when it comes to A, the investment or the types of investments I look at are companies and B the actual acquisition, there’s only one LP in this case, right? In this way, Kingsway, sort of the king maker, right? They’re the end all and be all and I could eventually acquire them. And so I didn’t have the flexibility. Some other folks had where maybe some of their investors didn’t like it, there’s another set that may be interested in the type of things you’re looking at. I pretty much had to really be aligned with my investors with Kingsway right from the beginning, which wasn’t really a problem. But I do think if you were maybe thinking of some non-traditional type businesses, you would probably run into more of an issue going to a single sponsor route in the traditional route.

Gotcha. And what are some of the overview, pros, cons of Kingsway’s CEO program?

Yep. So it’s a fairly new program. We have to call an accelerator light program. And if you’re thinking about Kingsway versus traditional versus maybe some of the other programs I could say, like I mentioned before, the Kingsway versus traditional split is a lot about where the funding comes from and how much flexibility you have. I would say the Kingsway versus the sort of other accelerator model split. There’s two things, right? So one is currently while you’re searching and then the other area is what happens after the search is closed. So I would say compared to some other programs, we are a bit more hands off. I think the keyword for us is entrepreneurial. So, we provide our searchers with all of the tools that they need to be able to conduct an effective search, but there’s very, very little overhead on the search.

I’d say you kind of run fairly autonomously as well. And also as a newer program, we’re fairly small. So I know Broadtree, I don’t know. I think maybe they closed five or six searches or something like that in the past 18 months. Like we have three people in our program including myself, so two active participants right now. So it was a little bit smaller in that sense. And I would say a little bit less developed, but intentionally I think the personalities we’re looking for are fairly okay with ambiguity and lack of structure and people who can come in and put that structure in place is what we’re looking for. So we were a little bit less developed, a little bit more wise there than the other programs, which also meant you had a little bit more autonomy, I would say, compared to some of the other programs as well.

Gotcha. You said now you’re the first CEO within this program to acquire, have you taken a big role in shaping the program itself for future CEOs?

Yeah, so Kingsway in 2017 acquired a business called PWSC. And this is a business that does warranties for new home builds. And at the time of acquisition, they hired a guy out of HBS, a former army guy named Tyler Gordy and they put him into the company basically as COO. And then within one year he was running the business as CEO. He did really, really well. And that gave him confidence a little bit more on trying to bring this in house and running that model of funding, sort of young managers and having them bring companies within Kingsway to run. So Tyler helped put the framework of the program together. And as I mentioned, I joined, it was fairly sparse, but since I joined and there was nobody else, I kinda had a lot of input into sort of where the program went because I was a Guinea Pig from everything from how do you get paid?

What are the terms for the acquisition? How do we market the program was our pro what are our processes for interviewing people, things of that nature. I got to have a lot of input and also for the searchers too, the tech stack as well, what is the process by which you go out and find these companies? What are the tools you use? What are the flows you should use? What are the assets that we develop, like scripts, things of that nature. So I was very sort of actively involved in seeing the program grow and succeed. And I think the one thing I do like about these accelerated programs is that you feel like you have a stake in the success of the people who come before and after you a little bit and kind of like that sense of camaraderie.

So I was very focused on making sure that whoever came after me was set up better than I was set up and also very intentional letting them know, Hey, when you leave the program too, you need to be clear. You’ve made a mark and even proved the program somehow as well. And so I think that’s kind of the ethos that we have now is that we’re always trying to make it a little bit better for the next steps. So yeah, it was fun getting to put that together.

Do you take part in the interviews for future CEOs that are added to the program?

Yeah, I do. So in this year, or I guess for last year’s class, when we added two more people, I basically kind of ran the phone screen slash part of the first round interviews. And then the second half was our CEO JT Fitzgerald, who would do the final round interview. And as I mentioned, we’re very simple. I know, I know a lot of other programs, they say, Hey, we wanna talk to you for eight or nine months and there’ll be 20 conversations. And I think that’s fine. But as said before, we kind of approach everything with the kind of hands off attitude. So it’s two quick conversations, some reference checks. And if you like, you’re in the program. So it wasn’t super involved in that sense, but it was, yeah, I was involved.

I’d be fascinating to know what kinds of questions or things you’re looking for in these folks now that you’ve had almost a mix of the searcher seat and investor seat and that you’re now shaping this program. I’d love to know a little bit more about what you’ve look for with that next crop of CEOs as they come in.

Yeah. So Kingsway has this like a business, or I guess talent development framework, they call it the five H’s and it’s humility, honesty and power. So like your intellectual capabilities, you know how much you can do. And two other H’s, which I’ll skip at the moment and we actually focus intently on extracting those things in the interview. So I would say the biggest red flag we actually see in the interview is not technical capability or anything like that. It’s humility. A lot of people will talk themselves up in the interviews. And I think one of the ways we kind of pick that a little bit is questions that ask the person to kind of reflect on how capable they are and seeing how they answer that question. Because I think what JT, the CEOs recognize, and I think even myself and other companies is if people who don’t have the self-awareness to recognize a lot of their success, is one partly do their innate abilities, but also due to, you know, the fact that they’ve been lucky, people help them and things of that nature tend to not be able to empathize very well.

And if you’re gonna come into a small business and buy it from the owner, you’re gonna really need to dial up that empathy, to connect with the people now gonna be managing. And so I think that’s one of the things that we really look for is do you have that humility. Were you able to recognize what you can’t do and seek to learn from others?

Yeah, that’s a really big one. One other thing I was thinking of on our call last time we talked a little bit about how Kingsway was a public company. It was interesting cause it’s one of the, it might be the only one I can think of a publicly available and publicly trading vehicle that invests in the search model, which is fascinating, which must have tons of pros and cons just in the public aspect of that. What are some pros and cons of buying a small company on behalf of a public company?

Yeah. So let’s start with why you’re doing the search. So while you’re doing the search, there’s a whole set of pros and cons and the first pro is that there are a lot of people doing search today. It’s hard to differentiate yourself, right? A lot of people have similar backgrounds to myself, went to the same schools, did the same jobs, et cetera. So it was nice to say, Hey, listen, I’m an employee of a company that’s publicly traded. That was one thing that was very nice because then people would say, Hey, that’s interesting. I haven’t heard about that. And it would at least give me a little bit of a second look whereas lots of people would say, Hey, you know, I’ve gotten 50 emails from searchers today. They’re just not interested in looking at it. It helped me differentiate myself a little bit.

That was one of the pros. The thing I didn’t really think about though, is when you’re a public company or you work for a public company, you’re an open book, right? So what happens sometimes is, Hey, as a company we’re public, you can look us up, et cetera, expecting that gives me a little bit of cache and differentiation. And then they would go look at the books, go through our income statement, go through the balance sheet. And they would have all these questions because we have a pretty complicated structure. We are migrating our model, but we have a sort of a long history in merchant banking and other things that still has residual effects on the way our financials look. And it can be very confusing, right? And so sometimes actually about it may not be helpful, that there was so much transparency because if I was just funded by 10 high net worth individuals, I could just say, Hey, these are the people who are funding me on my website.

You can email them. And that would be kind and a bit. Whereas now people are asking me to explain the balance sheet of a company that I didn’t really have too much intimacy with why it looked the way it looked. So that was one of the downsides. Then I would say, when you’re done searching, I think it’s primarily upside. So one of the things that’s pretty nice for me is that I am now part of a consolidated holding company, our benefits, we can get at that group level, we can take part in the stock purchase program. So our employees can get upside in the broader performance of the company. And we also have a lot of other sorts of shared services as well. That are nice. But I think most importantly, and this is where there’s a big difference between sort of our program and other programs is there’s a very regular cadence of communication between King’s way and myself after acquisition. There’s something we call the Kingsway business system. That’s modeled off of Danaher, Hoshin Kanri that you put into place of subsidiaries you’ll meet weekly or more with the CEO of Kingsway to discuss performance of new business. So there’s a lot of oversight that comes along just with being part of Kingsway. And then also with being an SEC-regulated entity that I think is beneficial to a new CEO to kind of just keep them on the straight and narrow early on in running business. Yeah.

One other thing to talk about was the presence of a bunch of net operating losses from years past in Kingsway. What’s the effect of that? It sounds like there is an effect of that when talking with owners or brokers, but I assume after the acquisition, there’s a pretty big effect too.

Yes. Yeah. That’s actually a great point. So one of the things that I probably mentioned earlier that attracted me about Kingsway were these net operating losses. So Kingsway, one point in time was a very large insurance company. One of three areas had very bad underwriting and generated these massive losses, which are still in the books today. So how that helps a searcher is a lot of people in search. When you go out looking to do a deal, you wanna do an asset deal because you get that step up in basis and you can depreciate the Goodwill of whatever you buy over 15 years, something of that nature. In our case, because we have such large NOLs, they aren’t really a federal taxpayer. So if I’m looking to do a transaction, it actually somewhat indifferent to is it a stock transaction? Is it an asset purchase?

But the sellers of course, are very sensitive to whether it’s an asset purchase or a stock purchase. From their perspective, they would love to have it be a stock purchase, right? So that right off the bat, you get an advantage with sellers because you can say, Hey, listen, I’m fine to do this as a stock transaction, which is actually pretty rare. The second thing from an economic perspective, I think, and this is broader sort of strategy of Kingsway is that we are generating cash flow and, you know, net income on a federal tax basis, essentially, right, with the magnitude of NOLs and the size of our business today, you know, it’ll take a while for us to kind of fully capitalize all those. And so we’re able to bring this net income into business and retain most of it, cuz it’s not going out to federal taxes. It only says taxes as well.

And then lastly, from a personal perspective, in terms of sort of the incentives of our program, since we’re gonna buy cash flowing businesses for our searchers, they’re all gonna be contributing and utilizing NOLs, but the cash is not gonna actually leave the holding company because of the NOLs. And we actually get credit for that. I basically get to return my preferred equity essentially via my tax payments. And so that’s something that really accelerates your ability to guess in the black, when you think about getting the debt end tax paid off, because a traditional searcher won’t be able to touch preferred equity that they have until they’ve fully paid off the senior acquisition financing. Whereas by nature of its benefit, I can attack that at the same time.

Do you also have a lot of similar deal structures, traditional searchers with the use of debt or some seller financing or does King’s way offer perhaps a different ability there as well?

It’s a similar structure, our dealing in the terms are public, it was roughly 50, 50 debt to equity and the connections relationships again, facilitated by Kingsway. So that made it a lot easier for me to talk to lenders, to get competing term sheets, things of that nature, because I was doing it through the confines of this much bigger company as well. But I think leverage is a fairly important part of the Kingsway strategy. So I roughly try to target around 50 – 50, which I think for traditional searchers is about the same. I know the cell funded guys have much higher leverage, but I think we’re probably in the ballpark for traditional search.

Can you share a little bit more if we’ve gone almost 20 minutes in here without talking about the company you bought. Can you share a little bit about the company that you acquired and how you got into you became interested in the HR space?

The company acquired is called Ravix Group based in San Jose. It is a provider of outsourced finance, accounting, HR, and advisory services. And I guess before we got into exactly how I found a company, kind of what got me interested in even looking in that industry, when I first started looking at search and kind of had two mindsets. My first thought was I need to find a really, really nice niche. And after doing that and getting frustrated that I couldn’t really find something super niche, I said, all right, maybe I’ll find something that’s like fragmented and would be amenable to MNA activities and rollups, and would allow me to compete, not on price, but on quality of business. And I landed on the PEO space, no surprise. That’s a very common place for searchers to land rich Augustine, I think good PEOs there’s a bunch of people done PEOs.

So I attended an audio conference in September of 2020 and I said, Hey, this is awesome. I’m gonna look into this outsource, basically outsource HR compliance space. I got into that space and I really couldn’t find anything. The multiples were very hot and there was just a lot of action going on and it was just difficult. So as I was getting more sort of disenchanted, I guess, with that space, I was thinking, okay, well, what are some adjacent things I could look at? And so I said, okay, more broadly outsourced services like BPO services. Where can I look? And that kind of brought me into outsourced accounting and financial services. So in my original search for HR companies, I came across Ravix group. They have a component of their business, which is HR, but the primary component of their business is the financial and accounting outsourcing.

And so that’s basically what led me to talk to them. I sent them an email actually in my very first batch of emails. So two weeks after Kingsway, I sent my emails out. They’re my first batch that was in August. I think they responded maybe on the fifth or sixth email in November. So that searchers are listening. Get at least six emails before you quit because people actually will sometimes respond in that seventh grade email. And we began talking in November and it was a good situation. I think from the get go, I had a lot of confidence that this could be something interesting because the year prior they’d actually considered some MNA activities. There was a buyer that had approached them. And two, it fit a lot of the characteristics that you want to see in terms of the business and the seller.

So, you know, the seller gentleman named Dan county, he’s in his sixties about the or years, he’s thinking about the planning, the next steps, the transition of the business, and didn’t have anybody inside the business that actually wanted to take that more administrative sort of CEO role. A lot of the folks in the business are really great at what they do. They love being consultants in their field of expertise and don’t necessarily wanna do the management stuff. And you actually had asked them too. So it was a situation where folks had been informed and asked and it turned down the opportunity to do it. And so I came knocking at just the right period of time. So we started talking in November and we closed the deal on the first of October to give you an idea of how long these things can take.

So Ravix Group, they provide three services, three business lines. The first business line is to outsource financial and accounting services. And that business line basically will provide anything from bookkeepers all the way up to CFOs and controllers to businesses. We’re based in Silicon Valley. And so our sort of bread and butter is venture-backed startups. So a lot of these companies, it’s two people in a garage, they get a couple million dollars from a VC and the VC says, “Great. I’m giving you this money, but you need some adult provision” So they have to go out and find someone to make sure that their books are in order, that they have the right controls in place and things of that nature. So we come in sometimes very early with some of these companies and then as we grow or as they grow, we grow with them. So we’ll bring in more people, we’ll bring in higher level folks, controllers, things of that nature, county managers, we’ll make sure that they are they’re prepared for growth essentially.

So we’ll help them build their internal departments, build their internal procedures, build their controls, things of that nature. And then if the companies actually are successful and eventually do MNA activity, IPO, et cetera, we actually have a technical practice within the finance practice that can help them with things like S-1 filings, pre IPO work, SCC, financial reporting, things of that nature. So concurrent with that, we have our HR practice that kind of has the same thing, right? We’ll come in early to help you do procedures and processes, help you think about hiring incentives, things of that nature, and then help you sort of build up what will eventually become your internal team. One of the things that’s interesting about this business is that going in for the most part, that your relationships do have a termination point. It’s not something where you come in and it’s a five-year contractor or whatever it’s indefinite.

But if you do a good job and the companies that you work with grow, there just becomes a natural point in time when it makes sense for them to hire their people in house. I think we’re about three to five years and we help them make that transition, we’ll grow with them. And in the mid stage, when we’re at our largest, and then we kind of will work our way out and help build their practice up. So that’s the two core businesses. We have another business, which I like to think is a little bit of a hedge if you will. So we have a business as we call advisory services, it helps liquidations and wind downs. So let’s say for example, you were a biotech company, you got a lot of funding. Do you have this miracle drug, do clinical trials and you don’t pass a certain phase, right?

Whatever the reason, it just doesn’t work anymore. It’s not viable. You need to wind down the business cuz you no longer have a viable business. And so we actually have a practice that’ll come in, help you wind down the business gracefully, make sure all your employees are paid, make sure you’re doing a compliment or make sure you pay back their creditors, et cetera. And it is a hedge in some sense, because we’ve actually had clients where we’ve taken them from startup, all through IPO. And we’ve also had the same similar clients where we’ve taken them from startup to liquidation and wind down. So we’re able to kind of service them across a business continuity life cycle. If the situation is good or if it’s bad and that’s the overall context of the business. So I think the reasons why I liked the business from a search fund perspective and the reasons why it worked for Kingsway were because of the attributes.

And so one of the things you mentioned was, you know, as a public holding company, how does that shape me to be how I think about doing investments in search? And I think really the question is like being a public company, how do your shareholders affect the way they allow you to have this program and what you’re allowed to acquire? And so when we had our investor presentation a couple weeks ago, that was one of the big questions they said, Hey, Kingsway does extended warranty businesses. We know that, we love that. What the heck is this? Right? And so I think the way that we pitched it to them when we told them is to listen, things went into extended warranty, not because of love extended warranty, but because the attributes of a good business are readily found in extended warranty businesses. So low CAPEX, low working capital needs, non technicality, low customer concentration, growing industry, necessary service, things of that nature.

And what we’re doing in the accelerator program is finding businesses that meet that profile. And so when I looked at the outsource accounting space, it was one. It’s a necessary function in all businesses, you have to have accounting. It was benefiting from secular tailwinds because regulatory schemes have just been getting more and more and more complicated. They change them every single day. So it’s really hard to keep track of making sure your counting is correct. That’s another one, two, generally speaking, the industry’s very fragmented. So I think 80% of operators in this space are what we call sort of single shingles or individual operators just by themselves. And then lastly, it’s very capital light, right? You pretty much just have wages and some laptops, but there’s very low capital intensity. And so at a high level, if you abstract away what the business is, it actually looked very similar to the warranty businesses.

And I think that’s what got me excited more broadly speaking about you’re going into the space. And also there’s some confirmation bias as well. Just some of the people that I talked to in the search space, it also acquired sort of similar businesses too. So it seemed like it was an okay place to be. But that’s what got me excited about the space and also why it worked for Kingsway. If it had been something like a manufacturing business or even a plumbing business, a thing is gonna have wear and tear on capital assets that wouldn’t have worked for them.

So what could shareholders do if King’s way bought a company that they didn’t like, or they didn’t agree with to what degree down the chain can they affect what companies Kingsway buys. I assume they can’t outright fire you, but they might be able to replace certain managers or board members. What kind of effect can a shareholder have?

That’s a great question. I would imagine they have the same capabilities to voice their displeasure as in any public trader company. We’re a little bit more closely held, I think insiders own about 40 or so percent we’re common equity. So those shareholders will have outsize power to make changes via board mechanisms or whatever. But that said, our team has a very close relationship with the shareholders being so closely held. So we’re gonna make sure that what we do would be something that they would agree with as well. But it’s just that second level of checks and balances that you have, you wouldn’t see in a traditional search, right? It’s typically well done by my investors. Like it, that’s great. In my case, my investors also have shareholders who also need to like it as well. And so that’s the unique thing about this model.

Yeah, certainly. And we also talked previously about how public companies that are conglomerates of lots of different businesses and lots of industries often get discounted because there’s not a clear focus within the company. To counteract some of that, is there some additional communications or marketing that you think you’ll have to do within this CEO Accelerator Program to make sure shareholders know that these different businesses while they’re in different industries are still aligned with the broad mission of Kingsway?

Yes, no, certainly. I think that’s something that we’re, we’re gonna have to do. And it’s something that came up in the investor presentation. The messaging, I think hasn’t been as clear as it could have been as to what, and I think the direct feedback from shareholders to, to our team was figure out a way to make this more clear to us and to the market as to what exactly is going on with this program. And so I think we actually are taking some steps to differentiate that or make that component of Kingsway to make the accelerator program more easily digestible by someone who’s reading Kingsways material. That’s a big part. And to your point, one of the things that I think every company says is, Hey, listen, we’re, we’re undervalued by the market, but when you are a publicly traded conglomerate, like you mentioned, the messaging is almost as important as in reality, because sometimes it’s hard for people to really understand what the heck’s going on without guidance. And so that’s one of the things that I think at the corporate level they’re working on: how do we clean things up? How do we restructure things? How do we move businesses to certain places so that when we wanna tell our story about who we are and what we do, it’s very clear and that’s something that’s underway right now.

Have you seen any other public companies developing or thinking of developing a similar search style program?

I’m fairly confident that we’re the only one, I think so. I don’t think I’ve really heard anybody else that’s doing this. And if they are, may also be small cap like us, like I was shocked that you heard about us via your friend who saw the press release because for a company larger and your market cap is just north of it’s 120 hundred 30 million. Most people don’t really see or hear what we’re doing. So it was really interesting to see that somebody was intently focusing or following that space. But I have yet to hear of any other public companies that are invested in search assets the way we are, because we are invested not only in our internal program, but we also have investments in an LP that funds searchers, traditional searchers called Argo partners. So we kind of have two angles to get that asset class.

So, can you share a little bit more about your summer plans with your company over the next few years, and some things you’re excited about?

One of the things I’m really excited about is sort of the way we structured the deal. I’m going to be in the business and the sort of Founder and former CEO, Dan will also be in the business for the next few years. I’m really excited to get to work with him, and we’re going to be doing a lot of transitioning relationships in handoffs. And so one of the things that I’m looking forward to doing from Dan is learning from him and building your relationships. But also I’m very excited to bring some of my new ideas into the business. And one of the things that I thought fascinating about this business is that they had grown to about 12 million in revenue with a marketing budget of $0.

This has been an entirely word of mouth driven business. And I think one of the things that has really resonated with me that I’ve heard from people in the business from the management team is that our best marketing is our work. And I love when people are intently focused on the quality of the work that they will just stand behind that as the only thing they need to do for marketing. But I’m also excited to explore the kind of ways that we can let new people hear about the kind of quality of work that we do. So I’m thinking about how we can do marketing more effectively? How can you utilize our website more effectively, do any kind of SEO, and things of that nature. And in other places I’m actually very excited to go in is changing a little bit of the nature of our client base.

So as I mentioned before, we have primarily startups, right? And everyone knows startups are boom and bust. So there’s bad times in good times, feast or famine, which is great. And if you have enough customers and we have 250 of them, you can still build the same old growing business, but they’re just kind of a lot of work you have to do to constantly fill up the pipeline because you know, some of these are just not going to make it from the beginning as somebody who just did a search funds, who’s acquired a lower middle market business. I also understand that those types of businesses need outsourced accounting services. So one of the places I’m actually very excited about focusing is companies that would fit the profile of a search type. Some maybe more than the funded search type, slightly larger, but companies that aren’t going to be growing 150% a year, or aren’t going to go bankrupt tomorrow.

They’ve been around for 10, 15, 20 years, maybe how to transition. And the new owner is focused on sales, marketing, et cetera, but not necessarily focus so much on the internal controls of the company and is okay with them, outsourcing that to a business that focuses on every single day. And the reason I liked that is because I’m basically trying to think about how I can extend our average relationship from three to five years to five to seven years. And I think that’s one of the ways would be to kind of get this mix of the two. I wouldn’t necessarily want to step away from what we’re really, really good at, but I think we can also provide a lot of value to companies like ourselves or other companies within the Kingsway family, with similar characteristics as we have, those are the kind of the two areas that I’m thinking about going in the more short term.

And then it gets at a long term and we’ll see how this pans out. COVID has changed a lot of things. So before we were very focused in Silicon Valley, we had a lot of people in Silicon Valley easily go and share clients and work to located with them, not the case anymore. I joined Kingsway fully remote. I didn’t meet my CFO until last week. So after we closed the deal, so that’s the world we live in today. And I also want to think about how can we expand? Ravix’ footprint from being primarily bay area, California focused to broader geographical regions would in whatever form that may take. So those are kind of some of the short and long-term things that I’m thinking about doing, and it works pretty well right now because for the current team, I guess you would say, it’s going to focus a little bit more on the internals and the inside and on their clients, which gives me sort of room to focus a little bit more on the operations. And then some of the outside marketing things of that nature.

Yeah. You mentioned earlier too, about how the startup clients either go bust or they go, boom, and they’re now bringing teams in-house to handle their HR accounting and whatnot. It’s almost like you need to find the search type businesses is perfect. Because they’re not those businesses typically won’t grow big enough that they usually hire that in-house so you almost want to find, yeah, you want to find those companies that don’t have necessarily the need as they scale to bring that stuff in house. So it could be a longer lifetime client for you even though, could they be a smaller client for you at first though versus a startup where they might be a really big client, but for less time?

So they could be a smaller client and we have some clients like these clients, let’s say in the nonprofit space, we have some clients that are in the furniture, rental space and things like that that will fit the profile of these businesses. And when I look at the relationship with these clients and look at the consistency of the revenue, it’s exactly as you would expect, it hasn’t changed that much over time. And the average lifetime with the client is just much longer because they strike that nice equilibrium of not being too small, still having some growth so that they need to have good controls, but also not growing so fast or changing so much that they’re not going to be around tomorrow. And so it’s a nice equilibrium, the big wins, you know, the massive gains you’re going to have the customers comprise a core, your business will always be those startups, the ones that make it big, but it’s nice to build maybe a foundation have some more recurring or reoccurring revenue beneath that, to smooth out the barrier and see that she may have. And so that’s to your point the approach.

Yeah. That could be really interesting. What college class would you teach if it could be about any subject you want?

Any subject? I think, and this is a pretty boring one, but for me, if I could teach a class, because I thought about what I actually know enough about to help them and learn, it would just be the introductory to computer science course. And the reason why I would teach that course is because I feel like that was instrumental in teaching me to think in a very structured way. And I use that sort of thinking everywhere in consulting business, when I want to tackle a marketing issue, like it’s just the fundamental paradigm shift. Once you kind of can understand thinking in that logical fashion, that’s the one class. I think I have enough skill to maybe, you know, a very low level introduction class. I can help out.

I’d love to take it. That sounds like fun. What strongly held belief have you changed on?

Yeah. So the one for me was the thing on niches. Like I was fairly convinced that the real, only way to find this, like to make this work was to find a company and kind of an obscure niche because it’s in business school. I think a lot of the cases that we get are these really cool businesses that are providing this like one widget for this F15 jet. And like no one else in the world can make it because they’re like located 10 feet from the factory and they just print cash. And so that’s the expectation. I think a lot of searches come in because I have to find these niches and they spend so much time racking your brain, trying to think of something that nobody else is thinking of, essentially what is like space, where people just don’t know about it, that I’m trying to find. And I think I quickly learned that, Hey, no, you can find success in a blue ocean. You just need to make sure that you’re able to find a place where you can compete on something that is not price. Once you’re competing on price, then you’re in trouble. But if you find a niche way to compete on quality, you start a space where you can compete on quality of service or some kind of specialty. Even this underneath you can find success, which is, I think, why like the outsource to BPS space.

I liked that one a lot. What’s the best business you’ve ever seen?

So this one actually is nichie and it’s from a friend of mine. I think it might be the best business I’ve ever heard about. I don’t know how big it is, but in an office space, if you go to an office, oftentimes there’s like in the cafeteria, typically a whole wall of posters, right? Then it’s like all the legal labor laws and compliances and things of that nature. So I had a friend who bought a business that basically supplies those. And surprisingly, they actually supply them on a subscription model because it’s one of those things where, you know, it’s California, where I live. If they changed some regulations, subsections like 2.1 that you have to get a new poster on your wall that has that new subsection 2.1. So he bought the business, he took it fully remote and they had some staff whose job essentially was to trap the regulation to make sure that whenever something changed, then they would update the posters and then send the new ones out to all their customers.

Well, you actually realize this is not proprietary stuff. This is actually straight up just legal language. What if we just subscribed to somebody else who makes these changes? And when we got a new update, we made the same change. So he took the business remote. He basically got rid of most of the overhead staff, right? Because he just outsourced it, the work that they were doing to his competitors and it’s a subscription model business. And so I think that for me was a really cool business. Because it was a niche I never thought about. I want buy those posters my whole life and never once thought about who buys those or who supplies them and how they pay for them. It’s finding out that it was a subscription model and almost no overhead basically runs itself. I thought that was pretty nifty.

That’s incredibly nifty. I like that one. Kind of a similar business and kind of the print world is this business that a friend of mine told me about called Pirate Ship. It’s this business that will create shipping labels for you. So you can upload addresses or CSVs. You tell them what your packages are, how much, a page, that sort of thing. And they’ll create a shipping label for you and you pay for it there. And then they go and buy it from UPS or FedEx or USPS and give you the label. And they’re able to get it at a pretty low cost and they sell it to you at cost. Their entire margin is made in just the 2% cash back that they use on their credit card, which they use to go by the shipping label. So the business makes no money, but that 2% cash back at the end of the year is all their profit. It’s just an algorithm or a formula on their site. That just goes and fetches based on your, your data goes, enters that information to UPS, brings the label back, charges you, and that’s it. It’s just an entirely digital, it was fascinating.

Businesses like them kind of almost run themselves a little bit, I think are fascinating. And they may not be huge, but I think once you find them, it’s like a money printer. So that’s what’s really cool about it.

Yeah. I need to find one of those and go buy it somehow. Let’s see. Awesome. Thank you so much for coming on the podcast. To me, this has been so much fun to have you and chat about Kingsway and Ravix and all of this stuff you’re excited to do. So thank you for sharing a little at a time. I had a lot of fun. Yeah.

Thank you for having me. It’s been great.




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