- Today we talk to Danny Namerow.
Many of the people we've met
with on this show have sold their businesses
to private equity funds.
Many of them have gone incredibly well.
Danny actually regrets his decision,
and even though he got an amazing valuation
for the company at 12 times earnings,
he lost something along the way.
He lost the legacy of the business he built.
He had over 6,000 customers at the peak of his company,
and 90% of them went away after he sold the business.
And so if he had to do it over again,
he actually wouldn't sell
or he would've sold to someone different.
And so I think the lessons
that we learn from Danny in this episode
are really important ones.
Welcome back to The Turn.
I'm Kory Mitchell of Iconic Founders.
The Turn is where blue collar founders
talk about the businesses they've built,
the value they've created,
and what comes next after they sell.
Welcome to The Turn, Danny Namerow.
Super excited to hear your story.
I love the fact that you've kind of moved your life
to a warm tropical climate post exit.
So gonna want to hear all about it.
Maybe as we get going, maybe just tell us,
tell us a little bit about you and your background.
- The easiest way to say it is that I'm guilty
of dropping out of two really good universities
and becoming an electrician, which my father was,
was essentially punishment.
I joke about it now, it's been almost a 30 year punishment.
That was my last chance
to continue to live in the house.
And it turned out that, you know,
working with my hands, being able to see things grow
and be constructed on a daily basis, for lack
of a better term, was exactly what I needed.
Sitting at a desk is not necessarily my cup of tea.
- So your dad was an electrician.
Did he own a business?
- He owned a company that was named after my brother
and I, Geordan Electric.
So I named my electrical company after my sister
because she said, how come all of the men in the family
get to have-- - I love that.
- You know, the names of the companies be named
after themselves and the sons
and the brothers, so on and so forth.
So Ferran is my sister's first name.
- I love that.
What was your dad like that made him go into business
and how did that inspire you to start your own thing?
- So my father is very traditional and still is to this day.
The first thing I learned from my father was not
to put all of your eggs in one basket.
So in that regard, we worked on three homes
for one family for approximately nine years.
The smallest home was around 16,000 square feet.
And initially when this relationship started
between this gentleman
and my father, everything was very warm, very familial,
but the more the money accrued for this man
and his family, the more distant he became.
And eventually my father wasn't dealing with this person.
He was dealing with the accountant, he was dealing
with the secretary of the accountant, so on and so forth.
And it became very impersonal.
I watched my father between decisions that he made
as well as an injury that he got in a car accident,
kind of watch that business dwindle down to nothing.
- Talk about customer concentration risk.
- Major.
I mean, it was unbelievable.
And by the way, the things that I learned
on these jobs were priceless.
But there was
that hard lesson wherein you must diversify.
I taught for six years.
I taught electrical theory, contracting,
the National Electrical Code, so on and so forth.
And it was during a period wherein I took off
because my second daughter was being born,
that I had planned on spending a lot of time
with my new daughter as well as my wife,
and trying to be as supportive as possible.
I then had another in rush of requests for work
and that's where Farryn Electric was born.
- Tell us about those early years of being in business.
Like what worked, what didn't work,
and how did you take some of those lessons
to make a successful business
that was eventually become sellable?
- When I started Farryn Electric,
I really thought the epitome of success was working
for builders, was working on large luxury homes.
And so I would say for the first three of the eight years
that I owned Farryn Electric, we were working
for luxury home builders in the main line of Pennsylvania.
And we were losing money.
We were in the red every stinking year.
So I didn't learn the lesson that I should have
at that particular point.
It was when I brought in certain people
and they say, surround yourself with people
that are smarter than you, especially in certain areas
of business.
And this particular gentleman,
I'll gladly mention his name, John Neil,
he's a very good friend to this day.
And he said, you've gotta do two things.
You need to diversify.
And what he meant by that was, stop working for builders.
Get into the service business,
start using flat rate pricing, start offering packages.
And that is when we saw this business just take off.
It was unbelievable.
The difference in the success that we had
with the business was night
and day between working for builders
and working directly with the homeowner.
- Diversify, flat rate pricing and packaged pricing.
I understand diversification, of course.
Tell us what you mean by flat rate pricing.
- So we were really killing the business by,
you know, delivering our proposals based upon
time and material.
Now, flat rate pricing is based upon time and material,
however, it just kind of condenses things
and it allows you to work a lot quicker.
So with the flat rate pricing, you're gathering
all of your expenses, you're adding your profit
plus possibly a little bit more.
And you obviously, putting in the net
that you would like to get, the net margin
that you would like to get.
And now all of a sudden, you have the capability of going
to somebody's house and immediately telling them
how much a job is gonna cost.
There's no wait time.
It cuts down on decision making time, so on and so forth.
And it really, really expedites the process,
which makes you much more successful.
- That puts a lot of risk on you
if your guy prices it wrong, how do you figure out
how to train that team who has the real potential
to put you at risk out there when they're estimating jobs?
- We had our greatest success
with a company called ServiceTitan,
and I'm sure you're familiar with ServiceTitan.
We tried a few others.
So with ServiceTitan, I could in real time
see exactly
what these guys were doing when they were pricing the job.
Another thing that is absolutely important is
that when you do this,
you're essentially asking an electrician
to become a salesperson.
And not everyone is going to connect with that,
but I truly believe that everyone is a good salesperson
as long as they do one thing.
And that's just be themselves.
So we had guys that were excellent, excellent salespeople,
and you know, another gentleman
who would ended up being my right hand man in the field,
a gentleman by the name of Robert was in his own words,
a horrible salesperson.
And I said to him, well, grasp that, embrace that.
In other words, just be yourself.
And when you do that, you'll learn.
When Rob settled down
and just became himself, essentially stopped trying to sell
and just dispensed information,
he literally sold the largest service job
that Farryn Electric ever was contracted for.
And it was a little over a hundred thousand dollars.
It was about $123,000 worth of work.
- What was your typical size job?
- The smaller the better.
In other words, I truly believe that the quicker we get in,
the quicker we get out, the more money we make.
So we were trying with one man
or one team, I should say, to do an average of two
to three jobs in a specific workday.
Essentially, you know, looking in the three
to $4,000 range was a success for us for sure.
- People have this idea that big jobs are better
and my experience is the exact opposite.
The bigger thing, the bigger takeaway
from an exit ability standpoint, buyers hate them
because they say, I have no idea if that big job
that they got that Danny got last year is ever coming back.
But it's a lot easier to understand
how I'm gonna spin up my marketing machine and get two
and $3,000 jobs over and over and over again.
And if I lose one of them, guess what?
It's not gonna kill my month, might suck for the day.
And at the same time, to your point,
you're in and out, you're getting paid much quicker
so your cash flow's better
and the margins tend to be just dramatically better
on those small jobs.
- Indeed, I completely agree.
- I hate to do this, but I wanna dive more
into this sales guy concept.
What you just said is you actually believe every one
of those people can sell.
I wanna like dig into that for a minute
because everybody I know in this contracting arena struggles
with this exact concept.
- The key is to make it as easy as possible
for them to educate the client
as well as really educate them.
In other words, you know, my father used to say,
you've got two ears and one mouth.
Use them proportionately.
So you need to learn how to shut your mouth,
listen to the needs of the client, and then come back
and kind of redirect where they're going
or become the conductor again, if you will.
I truly believe that just about anyone
can become a good salesperson.
- I wanna dive into one more concept before we start,
before we start kind of getting to the meat
of the conversation, which is to, you know,
building your business to sell it,
but this package pricing,
can you just tell us a little bit what you mean by that
and why that was critical for you?
- Cannot necessarily be done in every single scenario,
but you'd be surprised or people would be surprised
at how many times
or how many situations you can use packages.
And why do we use packages?
It's very simple.
If I give somebody one price, they have two choices.
I either get a yes or I get a no.
And it's all built into the human psyche.
If you've, you know, you try to aim
at giving a customer three options
and going back to the human psyche, they never want
to be the cheapest, right?
They never wanna do the most expensive thing,
although I love the customers that always did.
They're always gonna fall into that middle package.
I believe the statistics say around 70%
of the time they're gonna fall into that middle package.
So then you can kind of flip it on its head.
And what I mean by that is put your most interesting,
your most profitable,
the parts that are most easy to install.
Throw 'em all in the middle package.
(bright music)
- One of the things that's not talked about enough
is if you're selling a service by the hour,
think of law firms,
think of accounting firms.
Well a lot of construction firms also sell by the hour.
And one of the challenges of selling things by the hour is
that you're automatically capped
at how many hours you can sell per person, right?
The average guy works 2080 hours a year.
You're capped at selling that many hours in a year.
Danny talks to us about value selling.
If you can figure out how to actually sell for more value
per revenue hour, you're able to unlock tremendous amount
of profitability in your company.
Danny changed his pricing from time
and materials to fixed price contracts.
And what that allows you to do is increase your productivity
and therefore increase your margin per man hour.
And when he unlocked that lesson,
the profitability in his company just went through the roof.
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What's the trajectory
of the business now moving from this point forward?
- It was unbelievable.
We skyrocketed in revenue.
I actually paired down the amount of people working
for me out in the field
and we just, like I said, the success of the business,
the fact that we had six teams on the road,
I believe it was six at the very end,
but had a book of over 4,000 clients
just tells you how successful we became.
So it was literally night and day.
We went from struggling
and having to take lines of credit
to me starting a car collection
because we had so much extra money.
So yeah, the trajectory was quite astonishing
to say the least.
- So were you 100% owner of the company?
- Yes. - Okay.
So this is your baby, you're building it out.
I know that one of the things you did
is you got involved in a program with Goldman Sachs.
Tell us what that was called and what that meant for you.
- Goldman Sachs 10K SB was a pivotal moment for me
and there's two reasons why.
On the very first day,
and the very first thing that was asked of us was,
what's your exit plan?
And as soon as they said that, I remembered exactly a lesson
that my father taught me
and that was when running wire from point A to point B,
it is imperative that you put the boxes,
aka, the destination, you fix them to the wall,
you set them because how can you run a wire from point A
to point B if you don't know where point A and point B are?
We can take that analogy
and we can certainly apply it to the business.
In other words, I have to know everyone
who is in business has to know what their exit plan is.
The other thing that was absolutely pivotal,
and I immediately went home
and started creating this, create a document about
what would Danny want in this situation,
what would Dan do in this particular situation?
So creating SOPs for the business
was pivotal with regard to what I learned in 10K SB
and having a structured exit plan was also pivotal.
- I'm curious, in your version of an exit plan,
what were some of the key things
that you remember putting in the document?
- Wow.
Well, it certainly wasn't selling my business.
It was really leaving a legacy for my family.
That was my ultimate focus.
If I had to do it over again,
I probably would've followed my initial thought,
which was keeping the business, scaling it,
stacking it, and essentially either leaving it
for my employees to run or giving it to my family.
We had a new revenue target every single year.
Really it came down to what I refer to as stackability.
In other words, in any business, if you have expertise,
and I'll go to the electrical side of things,
if you have an expertise in electrical business,
if you have a warehouse with all kinds of parts
and materials and things like this, you know,
we kind of put the blinders on
and have this singular focus
on being a residential electrician.
But I had dreams of expanding
and finding other revenue streams
that could be supported by Farryn Electric.
One of them was a landscape lighting,
a low voltage landscape lighting company.
And what people don't understand,
what homeowners don't understand is they're paying,
you know, thousands of dollars in labor
for low voltage landscape lighting.
When low voltage landscape lighting is something
that literally anyone can do.
The human body cannot be hurt by 12 or 24 volts.
So in that regard, one of the things
that I was thinking about was stacking,
how can we create other revenue streams
using the expertise that my team
and myself already have.
- One of the things you see in private equity investment
as an example, is they take a business
that's got one service line
and as soon as they close the deal, they figure out
how to immediately add organic growth
by adding a new service line.
Danny calls it stackability.
Think about it this way, if you've got
a tree services business, you remove trees
because the tree falls down.
Same customer needs things like plant healthcare in his yard
to preserve the health of his trees
or, you know, prune the trees
so that they don't fall on your house, so on and so forth.
Those kind of service line add-ons can take
the same customers, the same sales team,
the same people doing the work
and adds immediate new revenue opportunity.
And usually the margin's higher.
'cause you're already on site.
So you said that you got the business, you know, up to,
did you say six crews by the time you sold?
- Actually we scaled back to six crews.
I was much more successful having a smaller company.
We created maybe less revenue,
but our margins were much greater
because there was communication,
which is an absolute killer in business,
especially large businesses.
It became a lot easier
because we had a smaller number of crews.
I mean, I was running at one point when I was working
with contractors and home builders.
We had 23 electricians working for us.
To scale down to a little bit less than half of that,
we actually became more successful.
- One of the things that Danny found
as he got a little bit bigger,
I think he felt like he started
losing control of the business.
So he actually scaled down to a smaller team.
And interestingly, he found that the margin
of his business went up
and the quality of his life improved.
- I had a team that could run this business
with their eyes closed.
But the fact of the matter is, is I cared.
I absolutely 100% trusted my whole entire team
to run this company.
And once again, if I had to do it over again,
I'd be living in Costa Rica,
continuing to have Farryn Electric
but have other people run it.
- Let's now walk towards selling the company.
How did this even come about?
So, you know, you'd built this business,
you felt really good, the margins are great.
Why did you decide to go through the process
and how did it even come about?
How did they reach you?
- So I thought these were people prank calling me.
I think this gentleman who was head of acquisitions
probably called me three times.
It was on the third occasion that I didn't hang up on him,
that I did start to listen to him.
That I had verified that they had bought other businesses,
specifically the HVAC business that kind of
took my business in and that this guy was real.
And I don't know
what the economic environment is like now,
but they offered me almost 12 times my EBITDA.
And that was, that's unheard of, that's like
crazy, crazy money.
So, you know, we were doing really well
and I was living a really, really nice life.
But at that time,
what I was offered was game changing money.
I literally overnight became
a newly minted multimillionaire.
And that to me seemed really, really attractive.
I was offered above
and beyond that initial buyout, what's referred
to in the business as an earnout.
So for two years, I was to work
for the company that bought mine
and that's where I really learned
my true business life lessons.
And that is that no amount of money can replace
the calm, the security, the confidence
that a business owner gets
from being in control of that business
and just about every single thing that they said
that they were gonna do was not followed.
It became, with all due respect to them,
an absolute nightmare.
And I remember my brother saying, Dan,
I don't care if they ask you to pick up wire
off the bathroom floor, suck it up for your earnout.
And there are some people that can do that.
There are some people that are so corporate
that they can just follow along like a robot
and I am just not that person.
So actually structured a deal with them
where I received my first year's earnout
and a portion of the second year's earnout for me
to leave a year early.
And really in that one year that I worked there
and essentially watched them for all intents
and purposes, kill everything that I worked
so hard to build, we lost all but 10% of my book.
I spent that year looking from Portugal to Mexico
for a place to take my family
and have a bit of a different experience
because I lived in the same town for, geez, 37 years.
So that's how I ended up in Costa Rica.
- I hear you loud and clear.
It sounds like looking back,
you wouldn't have done the deal.
You have regrets that maybe you could have just
put a management team in place, lived out some
of your family's dreams in Costa Rica and continued to own
and cash flow the business.
What can our listeners glean from that
and how should they be thinking about protecting themselves
as they're potentially moving towards selling their company?
What would you have done differently?
Let's just say you decided to go through with it anyway.
How would you have negotiated that differently
or how would you have thought differently about
who bought your company?
- That's a great question.
I think, and by the way, I had a great attorney.
I really, truly did.
But we're dealing with a multi-billion dollar,
you know, company that really stuck to their guns
and had a team of attorneys, so on and so forth.
So I guess my first piece of advice would be something that,
once again, my father taught me.
And that is defer liability, especially when it's something,
when it concerns something that you are not an expert in.
So if you don't know how
to structure that purchase agreement, if you don't know how
to structure a shareholder's agreement, things like this,
you better have a good attorney that kind of, you know,
for lack of a better term, holds you back
and says, wait a second, Dan.
And by the way, my attorney did, my attorney did.
There was this internal
and external struggle with should I sell, you know,
and it always came down to that 12 times EBITDA,
12 times EBITDA, 12 times EBITDA.
And it probably, it didn't probably, it blinded me
to these little asks, if you will,
in the asset purchase agreement
and these little, you know,
promises in the asset purchase agreement
that I ignored because the money was so good.
So if I had any advice to give, stick to your guns.
If there's one company
that is interested in buying your company,
I promise you there's another one as well.
And the reason why I'm saying that is
because at the same exact time I sold my company,
the gentleman, Seth, who I had mentioned before,
literally a week
before I sold my company, sold his HVAC company
to another venture capitalist firm.
And they are the absolute antithesis of whom I sold to.
You know, I try not to be jealous.
I try not to look too deeply into the past,
but he's still working for them and he loves them.
And this company followed through with everything
that was written into the asset purchase agreement.
It was, like I said, the absolute antithesis
of my situation.
- I think this is a really great point, really understanding
who you're getting in bed with is so critical, right?
And doing your diligence there,
interviewing people they've already bought before,
finding out how they think about partnership
and people and contracts.
You know, just a must have,
but I think the most important thing you said
is know your value, right?
If you have a valuable business to them, to your point,
it's valuable to many people.
And it's a reason why I usually say, hey, look,
don't, you know, don't necessarily take the first offer
you get, even if you end up with the buyer
that approaches you first.
It's worth kind of looking around
and having some representation and going out there
and seeing who else is out there.
If you're gonna sell anyway, you might
as well make sure you end up
with the right deal and the right partner.
And even if it's the same multiple
or valuation, you could have wildly different terms
with a wildly different partner.
Silver lining, you got 12 times EBITDA,
you got one year of your earnout.
I'm looking at a beautiful house in the background
in Costa Rica.
It seems like the flip side of the regret is
you were able to live out this lifelong,
I don't know if it was lifelong, your family's dream
of moving out of the country, in your case to Costa Rica.
You know, tell us about the experience post exit.
How's life been?
- You know, life has been really, really good.
A couple of lessons that I've learned.
Number one is that, you know,
everyone should find their Costa Rica.
When I had my business, I was putting my family second
and now I put my family first.
And for anyone to be successful, I truly believe that
that is a necessity that you've gotta put your family
and your faith first
and that will allow you to be more successful in business.
I've opened up two businesses
and I'm thinking to myself, well, I've got millions
of dollars and I need to diversify.
Money not spent is scared money, all of these things.
But the biggest lesson I learned in that
is that I was inspired
because in the electrical business,
you can see something being created daily.
Daily.
For my own sanity, for my wife's sanity,
I started an electrical company here
called Costa Lunas Electrical.
And I'm back in the field doing work
and I've never been happier
because I'm working with my hands, I'm doing physical work.
And last but not least, I get to see things
being created on a daily basis.
- On that note, I'm leaving the conversation super pumped.
I wanna find my Costa Rica someday.
I'm sure everyone else is gonna be looking up ways
to find theirs coming out of this interview.
Super appreciative of the wisdom
and the story that you've shared
and just grateful to get the lessons learned from you.
Danny Namerow, thanks for being on The Turn.
- It's my absolute pleasure.
Thank you Kory.
- I think one of the things we can learn from Danny is,
you know, finding your Costa Rica might take many shapes,
but he's able to do something that is often really hard
for founders to find.
He was able to find a way to really put his family first
and live the life that he'd always sought after.
Danny's found his Costa Rica in a way he probably
wouldn't have if he didn't sell.
And while there may be some regret,
it's a pretty incredible life he's built.
Thanks for watching The Turn.
I'm absolutely loving these stories
and I hope you'll consider liking and subscribing
and forwarding this on to a friend that might enjoy it.
Let's win.
(upbeat music)