Selling For a Truckload

Transcript

Josh Davis:

We ended up deciding to move forward, and some similar values and outlook on business and things like that. And the one guy … Actually, one of the things that really resonated with me personally is one of the guys that actually represented the large trucking company as part of it, so he was the one who was in the middle of doing the deal with us between Darryl and I, the M and A broker, the trucking company, and the private equity. So for me, I ended up building great relationship with him and looked up to him as even a mentor. But he ended up building up a business, a logistics company similar to ours, but different, but asset light, and sold it to these guys. And it worked out well for him, and he was still with the company five years later. So yeah, that really gave me comfort that we’re dealing with a guy that has built up a business, he sold it, exited it. It went well, and so that really gave me comfort that these were the right guys to go with.

Colin Morgan:

Hi there. And welcome back to another edition of Built to Sell Radio, the podcast designed to help you punch above your weight in the negotiation to sell your company. I’m your executive producer, Colin Morgan. And today on the podcast, John Warrillow is joined by entrepreneur Josh Davis, who sold is company, Speedy Transport. But before we get there, I would highly encourage you to head over to builttosell.com. As you’re going to hear during today’s episode with Josh Davis, he’s going to describe to you a business model in the trucking company called asset light. And for more information on what that is, you can head on over to builttosell.com. Also there, you’re going to find definitions to some of the lingo that Josh and John are going to use, which I find really helpful when listening to these types of conversations. And lastly, just a reminder to head over to our YouTube page at Built to Sell Radio, where we’re bringing you brand new content in a way that you’ve never seen before, so go ahead and head over to our YouTube page at Built to Sell Radio to see what we are doing there.

Okay, so let me tell you about today’s guest, Josh Davis. On his honeymoon of all places in 2015, Josh, alongside his wife and close friend, decided to start Speedy Transport, a trucking company that would ship temperature controlled products across the country. Now get this, in their first year, they grew from two to 45 employees, absolutely incredible growth. But about two years in, Josh’s wife, who is pregnant at the time with their first child, stated that she no longer wanted to work in the business. And this was the first catalyst in a decision to sell their company. A year later, they successfully sold Speedy Transport in what Davis you’ll hear describes as an emotionally draining but financially rewarding exit. Here to tell you the whole story is Josh Davis. Enjoy.

John Warrillow:

Josh Davis, welcome the Built to Sell Radio.

Josh Davis:

Thanks, John. Happy to be here.

John Warrillow:

Speedy Transport, tell us a little bit about this business. What’d you guys do?

Josh Davis:

Yeah. So we went a few different directions before we actually launched and rebranded to Speedy. But really, our primary business is transportation, mainly over the road, but we did offer rail service. And our kind of niche that we specialize in was temperature controlled food products, so a lot of delivering to major grocery stores across Canada, delivering groceries, meats, drinks, things like that. We did other modes of other products, we did flat deck and project work and things like that, but really, we really specialized in the temperature food products was our niche.

John Warrillow:

Got it. So if I make believe that I’ve got a skid of bacon that I want to move from, I don’t know, Red Deer to Vancouver, I’d call you guys up and you’d give me a quote. And you’d move the stuff in a refrigerated van or truck that would show up at Safeway, and the meat would be dropped off. Am I getting the business model right?

Josh Davis:

Exactly. Yeah. So we did exactly what you’re saying, so we had an LTL portion of the business.

John Warrillow:

What’s LTL stand for?

Josh Davis:

Less than truckload.

John Warrillow:

Okay, got it.

Josh Davis:

So it’s like a pallet, and so we had a division that did that, so we’d consolidate LTL. And then we’d do full truckloads of beverages or meat products.

John Warrillow:

Did you own the physical trucks or did you contract with drivers?

Josh Davis:

Yeah. So originally when we first launched the business, we were running trucks. We were running about, I think in total back then, we were running about 40, 50 trucks.

John Warrillow:

Meaning you owned 40 or 50 trucks.

Josh Davis:

Yes, yes, yes. And then we, around near the end of 2016, 2017, we ended up switching the model to asset light. So what we did was turned company drivers into owner operators. And then we partnered with … We went on a pretty aggressive campaign to sign up small trucking companies, mom and pop guys, guys that ran anywhere between three to 10 trucks, and so that’s really when we switched the model. My partner, Darryl, his background’s in trucking, so his dad’s company that he founded was running a couple hundred trucks and 400 trailers. So we were kind of working closely with his dad’s company, and then once we kind of figured out our niche and fully kind of launched in 2017, we went asset light.

So we had no company trucks when we rebranded and launched Speedy Transport. We either had owner operators or those small carriers, but we did have trailers, so we did an acquisition of a company with multi temp refrigerated trailers, so we did move into that. But yeah, we tried to stay as asset light as possible.

John Warrillow:

Got it. And for my edification, when you say truck, you’re talking about the thing the driver sits in.

Josh Davis:

Yes.

John Warrillow:

And then the trailer is the thing that attaches to the back that’s refrigerated. Is that right?

Josh Davis:

Yes, exactly.

John Warrillow:

So you moved to an asset light model, meaning you did not own the trucks anymore, but you continued to own the trailers, the refrigerators.

Josh Davis:

Yes.

John Warrillow:

Got it. What precipitated the move to asset light?

Josh Davis:

You know what, a number of factors. My partner Darryl, he was in the industry for 15 plus years working at his dad’s company, so he ran trucks pretty much his whole life. And then we wanted to scale an asset, a long haul company. But once we kind of got into it, it was great experience, especially for me because I didn’t come from the industry. But it was great experience doing that, but just for us, obviously trucks and trailers are extremely expensive. So in order to keep scaling, you can only move as many loads as the assets you have. So that’s when we started to really look into the asset light model and how we can scale faster. We’re really passionate about sales, customer service, and we wanted to grow rapidly, so that’s when we were kind of looking into different models, and then we went in this direction.

John Warrillow:

Got it. That’s helpful. How did you and Darryl structure the equity piece? Because it sounded like he was bringing … I haven’t asked you about your background, but it sounded like he was at least bringing a fairly hefty experience set to the table. Did he get more of the equity because he was sort of bringing more to the table? Or did you guys kind of half and half it? Or how did you sort of divvy up the equity in the beginning?

Josh Davis:

So at the beginning, he definitely had more equity than I did, but it was pretty close between him and I because also, my wife was part of the business. But then we actually took over his younger brother’s company as well pretty soon after the launch of Speedy, and he got a piece of equity as well.

John Warrillow:

[inaudible 00:09:12].

Josh Davis:

So Darryl and I were pretty close in equity. He had a little bit more, yeah.

John Warrillow:

Okay. How was that? I’ve always wondered what it feels like to have a significant share of your wealth in the company, but not having that control. Some people are nuts about it’s got to be 51%. I don’t want a partner unless I own 51%. How did you get comfortable with that idea of owning a little less than 50?

Josh Davis:

How did I get comfortable? You know what, I’ve always been an entrepreneur and kind of done my own thing. And I’ve had partners before where we were equal, so I guess in this case, Darryl and my wife and I were extremely close friends. We all met at the same church we go to in Vancouver, so we build relationship through that. And then both of us were in each other’s wedding parties, and our wives became friends and things like that. So our journey, we became close friends before we actually went into business together. And so that’s where I got really comfortable with him and he got comfortable with me and my wife. And yeah, we were fine with that.

He had a little bit more capital and some resources that he was able to kind of bring to the table at the beginning, so yeah, I was fine with it. And partnerships and things like that, it’s like a marriage. I’ve heard stories from friends where it doesn’t go well when you’re not in control, but in this case, our skillsets really complemented each other. Yeah, it worked out well.

John Warrillow:

Got it. So under the asset light model, how sort of big did you get this company before you decided to exit? What did that look like?

Josh Davis:

Yeah. I can talk presale. So we ended up, the deal closed June 2019, so leading up to the sale, we’re approximately about 50 million in revenue.

John Warrillow:

Got it, got it. And that was almost kind of brokering the actual. So like Uber, you would have drivers that you would pay to move the stuff.

Josh Davis:

Yep.

John Warrillow:

So did you think about … When I hear about some industries like Uber, where there’s a brokerage model, or advertising agencies, that buy media on behalf of their clients, it’s like they’ve got the top line number, and then there’s almost a net revenue number, which is revenue to the company after you pay the drivers. Do you know what I mean?

Josh Davis:

Yes.

John Warrillow:

Are you able to share sort of where you guys were at net of having to pay the drivers? Do you know what I mean?

Josh Davis:

I’ve got to be a little bit careful, but yeah. Presale, we call it gross profit.

John Warrillow:

Yeah. That makes a better number.

Josh Davis:

For us, it’d be gross profit. We’re 15% to 20% approximately.

John Warrillow:

Got it, got it, got it. That’s helpful for sure. And an employee count, not including the contract drivers, but sort of people on staff in the offices.

Josh Davis:

Yeah. The first year we launched, we went from the three of us to 40.

John Warrillow:

Wow.

Josh Davis:

And then when we sold the company, we were up to approximately 80, I’d say 80 kind of full-time office staff, a few contractors and things like that, approximately that was the range.

John Warrillow:

Got it. And profitable, how were the margins? Because of course, trucking is notoriously thin margined.

Josh Davis:

Yes.

John Warrillow:

It sounds like you guys were in somewhat of a protected niche in that you were doing cold storage, that you had these trailers. Were you able to drive a better margin that’s typical of a trucking company, or what was that like?

Josh Davis:

Yeah. I’d say for sure. I think temperature controlled food products, still the margin, it is tough. But yeah, it’s a little bit more niche. And obviously, when you’re dealing with food products and potential health concerns and things like that, there’s a little bit definitely of a premium for that type of transportation. So yeah, I think for us, we were able to retain reasonable margins. But it’s a tough business for sure, and it is historically low margins. Things are better I think in the industry right now. And actually, it’s significantly higher. But yeah, we were fortunate enough where we weren’t too low, but still, we had to really push customers and sell on service. And we tried to be a little bit of a premium customer service type company, and built our own technology and things like that. So we definitely weren’t the cheapest, we weren’t the highest. I think we were maybe medium to high was our kind of range.

John Warrillow:

Got it. And did you have any sense as you grew? You and Darryl may have had these conversations. Did you guys have any sense of what it might be worth at some point? Were you working on any benchmarks from the industry around multiple of gross profit, or multiple of net profit? Or what were you starting to think about in terms of valuation?

Josh Davis:

Yeah. We actually did five acquisitions in the two years. Smaller deals and a couple that were actually in distress, or a company, I mean a couple that were being run kind of old school, no technology and things like that. The industry has really shifted to being technology focused. So yeah, through that we actually learned a lot on evaluations of trucking companies. Typically fully asset based trucking companies on the deals that we were looking at, a lot of them were really just selling for asset value.

John Warrillow:

Book value and asset value.

Josh Davis:

Yeah. Typically, in traditional asset based, the owners, they make money off buying equipment and trailers. And if they’re fortunate enough to buy land, because obviously having trailers need to lot of land, they usually make money in their real estate is kind of what we found through these acquisitions.

John Warrillow:

Did you guys have real estate? You were asset light. So did you own the dirt that you’re on?

Josh Davis:

We did. So Darryl and I formed a partnership, and we had a couple other partners as well owning industrial real estate, so that was a separate business. That was kind of a side strategy for us. And obviously, we learned and Darryl knew through being in the industry that’s kind of a good avenue for us to go, so we did that early on. We bought a building and a warehouse in Annacis Island early on in the venture.

John Warrillow:

Got it, got it. So just to go back, so these asset based, in other words, they own the truck. They’re usually not getting any kind of goodwill, as accountants talk about it, meaning the improvement over top of the asset value. They’re really just selling for parts, if you will, the cost of the trucks, the land, the equipment and so forth.

Josh Davis:

Yeah, John, a lot of the companies we were looking at, I’d say yes. Some of the ones that we didn’t end up acquiring wanted a significant goodwill payment, which some of them actually deserved it, but we were kind of at a stage where we didn’t have a lot of capital. All of our capital was tied up in the business. And since we were growing so rapidly, we didn’t have a lot of cashflow. But yeah, typically, I’d say asset value. But yeah, if they’re running well and have decent margin, there can definitely be a goodwill component to that.

John Warrillow:

And what would that typically be, a multiple of gross profit, or net profit? Or how would you kind of come up with a valuation?

Josh Davis:

So I’d say in our industry, I mean, in the ones we were looking at, it’s a little bit different in the US. But I’d say typically, kind of a company that’s just kind of founded to being in the business for five to seven years, multiples are 3.5 to maybe six of EBITDA. That’s typically kind of the deals that we were kind of looking at. I’d say 3.5 to six. And then once you get over a certain threshold, and in the US, I’ve heard asset light companies going for seven, eight multiples. But usually, those ones have been in business for a longer period of time.

John Warrillow:

Go it. So when you’re referring to three and a half to six times EBITDA, you’re referring sort of those asset light businesses that have profits they’re placing this value on.

Josh Davis:

Yes.

John Warrillow:

Got it.

Josh Davis:

Or the asset based trucking company that they are running a decent net margin. Obviously, they’ll look at what … So say they’re getting five times EBITDA, and then they look at the asset value. So that’s typically where kind of the goodwill payment would come in. If it’s performing really well and they’re doing a decent margin, and yeah, I know a few companies that have exited and done extremely well running the full asset based model. And those guys can get up to I’d say six multiple of EBITDA.

John Warrillow:

Yeah. And to be clear, and this varies by industry, so to my listeners, I’d encourage you to find out how it works in your industry, but in most of the industries that I’ve seen, if the valuation is going to be based on a multiple of EBITDA, it’s usually assumed that the assets are owned by the business and required to generate the EBITDA.

Josh Davis:

Exactly.

John Warrillow:

So you don’t get to double dip. It’s a multiple of EBITDA, or you can sell the assets of the company, but you don’t get a multiple of EBITDA plus a price for the assets. Is that the way it works in trucking as well?

Josh Davis:

Yes.

John Warrillow:

Okay. Just so people are clear, if you happen to have a lot of assets in your business, it doesn’t necessarily mean you’re going to get a multiple of EBITDA plus the value of your assets. Usually, the acquirer will take the position that in order to generate EBITDA, you need the assets, and therefore, they are included in the price. It does vary in certain industries, so talk to your advisor. Super helpful, Josh. That’s a little inside baseball that I wanted to get underneath. Again, I don’t know the trucking industry well. So you guys are bouncing along. You’re growing like stink. You’re buying other companies. You’re 50 million on the top line. Gross profit might be 15% or 20% on that. And so you’re looking in the marketplace, and companies like yours are selling at pretty good multiples, three and a half to six, maybe as much as seven or eight if it’s in the US and it’s been around for a while. That’s good context. So what triggered you guys to want to sell? Because you’re a young guy, so I’m surprised you sold so early. What happened?

Josh Davis:

Well, there was a number of factors, John. One of the big things kind of personally for me, my wife and I, we started the business with Darryl a week after we got back from our honeymoon in Italy, and awesome experience. And working, grinding with your wife 12 hours a day, and our business, it’s 24/7, 365. Right? It doesn’t stop, so our relationship really revolved around the business, which definitely made us stronger and we had a lot of fun, and obviously a lot of hard times as well, and especially being newly married and running a business that’s growing. But kind of leading up to actual sale in June, my wife gave birth to our daughter, we have two kids now, but our daughter in March of 2019. And so kind of leading up to that, I remember we were driving to work, and she told me, “When I have our baby, I don’t think I want to continue on in the business.”

PART 1 OF 4 ENDS [00:23:04]

Josh Davis:

… have her baby, I don’t think I want to continue on in the business. And I was a little bit shocked. We didn’t even really think about it or talk about it, and she was such a key role in the company. That was a little bit of a surprise. But then when we talked through it, she was raised on her farm and her mom was a stay-at-home mom. They started a logging company, and so, she saw what that did and everything revolving around the business. And fortunately enough, her mom was able to stay home and still work in the business from home and raise the kids. Yeah, so she came to me and said that.

And so, we built our own software, that we can talk about after, but she was really involved in the building of our software. So she said if I do come back to work, I’d like to continue working on the software. So, that was the first indication. And then we talked to Daryl about it and that. At that point we had other people, we were making waves in the industry, so we had people approaching us and asking to… joint ventures, mergers, sales, things like that. So we were getting people to start to approach us, and obviously, M&A brokers and things like that were knocking on our doors. Yeah, so that was a factor for me personally.

And then, also, for us, all of our money was tied up in the business. Everything we had was in the business. And in our business, you’ve got to pay, obviously, your employees and your drivers and your carriers and things and that. And some of them you pay them within a, some are next day, if it’s short shipments. Some people weekly and then others, at least within 30 days. So, to continue to fund the growth, we were getting to the point where everything was going into the business. And at some point, it would’ve hindered our growth for sure. And a lot of the US companies that are similar to ours, most of them are backed financially by some sort of equity company or partner something. So-

John Warrillow:

Just because it’s a cash-thirsty business.

Josh Davis:

Very thirsty, yeah.

John Warrillow:

I want to back to cash for a second because I think that’s interesting to explore. But before we go there, I’d love to explore this relationship you had with the business and your wife. Here’s what I’m hearing you say is that you’re off in Italy and you and your wife and Daryl start the company together. Now, sometimes, I do interviews for radio and I hear people refer to their spouse as their partner, and they’re really partners by virtue of the fact they jointly own the assets that they own as a couple, but the other half of the relationship, the spouse, is not an operator in the business. They might be a shoulder to cry on at some point, they’re an advisor, but they’re not in the business. It sounds like, as I’m hearing you describe it though, in your case, it was different. Your wife was-

Josh Davis:

Very active.

John Warrillow:

… equity holder, a partner and an employee, is that correct?

Josh Davis:

Ah, yeah. So, she didn’t have equity, obviously, through my holdings and things, but-

John Warrillow:

You’re married together?

Josh Davis:

Yes, yes,-

John Warrillow:

Okay.

Josh Davis:

… exactly. Yeah.

John Warrillow:

But she was an employee.

Josh Davis:

Yes. She and she was, yeah-

John Warrillow:

Interesting.

Josh Davis:

… definitely a key part of the business, especially at the beginning.

John Warrillow:

Yeah, yeah, yeah. What did that feel like to have your… I know there’s a rational explanation, she grew up in a farm, you want to, stay-at-home mom, I get all that. But at same time, I’m curious to know what it felt like for you to hear that she wanted to step away as an employee. What was that like?

Josh Davis:

John, it was hard because, really, she was an integral part in building up the business. So, yeah, for me, that was, I was surprised, once we went through it all. But the initial, I was definitely shocked. I was like, “Really? Is that really what you want to do?” And she did. She even had a few tears, and she’s like, “I love the business. I want to support you and Darryl, but yeah, I don’t want to have to be grinding in operations 10, 12 hours a day. I want to be there for the kids.” And even in my mindset, at that point, we didn’t even have a lot of capital. All of our capital was in the business.

So, even me thinking about that, on paper, it seems like we’re doing really well and people think, “You’re an entrepreneur, you’re running a business and you must have tons of cash.” And the truth is, we didn’t. We were just getting by each month and injecting capital when we could to make sure everything kept turning. So, yeah, I was like how are we going to do this without your income and things like that. But yeah, so that was one of the factors where I led down the path with Daryl to agreeing to moving forward with the sale. And he was more for it at the beginning, and I definitely struggle with it, but my wife factor was a big one, yeah.

John Warrillow:

It’s funny, I can remember my first employee as an entrepreneur. This goes back, I don’t even want to say how many years, 25, 27 years ago. And she and I were not a couple, we were, I hired her full time. She was a part of the business, but it was a very intense experience because the business was, required 14 hours a day from both of us to get it going, and she quit. And I remember feeling like I’d been broken up with, by a girlfriend. Again, I want to reiterate, we were not, in any way, romantically involved, but it felt like, “What do you mean you’re quitting?” And so, I’m try to now imagine my wife doing that and having all of the complicated emotions associated with that, I would think it would be really tough.

Josh Davis:

Yes. It was, honestly, it was like a shot in the gut. I was just really, I was just taken back, and I remember even, I called her mom and I’ve, really close with her mom and I just, and I talked to her about it. Yeah. She said, Loretta’s seen me be a stay-at-home mom. And even though, having a farm and things like that, and three kids is, and plus working in the business behind the scenes and she just said, “Hey, Loretta’s going to support you, and it’s good to be there for the kids if you guys are blessed enough to be able to do that,” and things like that. So, she gave me some wise counsel on that, but-

John Warrillow:

My wife would kill me if I ever called her mom for advice. I can’t believe you got away with that.

Josh Davis:

I did. Yeah. No. Yeah, I’m really close with her… Her mom’s a big supporter of us. So, yeah, she’s great.

John Warrillow:

That’s awesome. I should’ve asked this earlier, but you brought cash flow up and the fact that the business was thirsty for cash and a lot of your family proceeds were just being pushed back in the business. So, if I’m Maple Leaf, for folks who don’t know Maple Leaf brand, they sell bacon, among other products, in Canada. So, if I’m Maple Leaf and I hire you guys up and say, “Hey, I want to ship a skid of bacon from Red Deer to Vancouver,” how does the cash move? When does Maple Leaf pay, and when do you have to outlay the cash to the driver? And I guess to the driver. When did the cash payments happen?

Josh Davis:

Typically, for our really good customers, that are up on paying, it’s 30 days, but, really, once we actually get paid, it’s… Even a 30-day, it turns out to be about 45.

John Warrillow:

Okay. So the Maple Leaf, the company with the bacon, they call you up, say, “Send a truck to Red Deer. I want to move this stuff to Safeway in Vancouver.” The clock starts ticking then and 45 days later, you get the check from Maple Leaf.

Josh Davis:

Yes, yes.

John Warrillow:

When do you have to pay the driver?

Josh Davis:

So it depends. For sure, 30 days is when we got to pay the driver-

John Warrillow:

After you drop the stuff off at Safeway.

Josh Davis:

Yes. But-

John Warrillow:

Okay.

Josh Davis:

… we do have other programs where some, especially more transactional guys that work with us, they actually would want to be paid next day, so we would do that.

John Warrillow:

Wow. So this is a very thirsty business. The faster you grow, the more cash you’re sucking up, even though on the top line, it looks great, it’s thirsty for cash.

Josh Davis:

John, so thirsty, and 30 days is best case terms. In transportation, 60, 90.

John Warrillow:

Wow.

Josh Davis:

There’s one… Anyways, I should be careful, but there’s a big customer, it’s 120 days, which is just-

John Warrillow:

Wow.

Josh Davis:

… it makes it very difficult to-

John Warrillow:

And how do you finance that? I mean, how did you finance that gap?

Josh Davis:

A line of credit. So, we had to keep extending our line of credit and personal guarantees and, obviously, mortgages and things like that, personal capital, just keep-

John Warrillow:

Wow.

Josh Davis:

… everything we could to keep it going. And the thing was, John, on paper, we were doing well, but cash wise, we were struggling. And even to the point where, when people would ask us for raises and things like that, because you see all this growth. And 40 people in the office within a year and thinking “Oh, these guys must have tons of cash. I’m going to hit them up for a big raise,” which we would raise as much as we could. Then we actually came up with a profit share structure for the ops team, which really helped us, I think, was one of the key parts in helping us scale. But it was stressful, for sure.

John Warrillow:

And with the profit-sharing scheme, I mean, what level of detail did you reveal for your employees?

Josh Davis:

Yeah. So, for profit share, we played with a different couple models. And really, the reason why we came up with the profit share is, because Daryl and I, I ran operations, Daryl focused on sales, but I did a lot of sales as well. I enjoy sales, I enjoy building relationships. And so, the problem we were having was, when we land a big sale and we’re going after Fortune 500 companies and things like that, when we’d bring it into the business and we want to continue growing and focusing on sales, we kept being the main point of contact.

So, even though we had the team dispatching the loads, when there’s an issue, they’d always call our cell phones, and Daryl and I are on the road, in Toronto and New Brunswick and Montreal and Calgary, and so, we’re like, how do we start getting the operations dispatch team to start thinking like owners? So we came up with a bunch of different strategies and figured it out. We tested a few things, and then we ended up coming up with, they had a target that they needed to hit and that basically covered their wages, the lights on, things like that. And then-

John Warrillow:

What was the target tied to?

Josh Davis:

Gross profit.

John Warrillow:

Gross profit. Okay. That’s helpful.

Josh Davis:

Yeah. Yeah. So it was really easy, it was easy for them. And then I designed a function in our software that we built to enable them to see their real-time results. And so, they would be able to go into their portal to see what they’re doing and how their accounts are doing and things like that, so it helped them. So, they would get a piece of anything above X amount. And then once we did that, and we did it uncapped as well. So we did uncapped, I guess you call it, we call it profit share, but commission on that.

And, man, it totally changed the game of our business and had people thinking like owners and really negotiating well and also making sure that accounts are paid up and things like that, with customers. And it also built a bit of a competitive culture and people were driving to set their record for gross profit. And then, for us, it was great because maybe we couldn’t give a significant raise in salary at that point, but when we implemented the profit share, it became a win-win for the company and for the staff.

John Warrillow:

Did it also create two classes of citizens inside your company, those that participated in the profit-sharing plan and could participate in the game and the fund of gross margin and those that had jobs in marketing or in accounting where they just didn’t have the jobs that would allow them to participate? Did you run into that, two class of citizens, and if so, how did you deal with it?

Josh Davis:

We definitely did. So, to compensate that we’d give year-end bonuses, though, obviously, it wasn’t tied to a metric. What gets measured is always better. And so, we had the vision of getting everyone in the company on profit share. And so, the first focus was operations. Because obviously, if that grows, then there’s going to be more cash and opportunities for everyone in the company. And then, we did roll out, our accounting manager was able to roll out different structures for the billing department and admin and things like that. So, that started to happen.

But yeah, it did create a bit of a challenge. Because, obviously, even on the billing, admin side, it was, obviously, not as lucrative as on the operations side. So, one of the things we, to try to not favor operations to billing, we offered everyone, anyone who wanted an opportunity, they could come into operations and we were growing extremely fast. So, we had a number of people move from the billing-administrative team over to the operations team. So yeah, that-

John Warrillow:

There’s a built-in incentive, too.

Josh Davis:

For sure. Yeah.

John Warrillow:

Yeah, that makes sense. You’ve, referenced a couple of times this software, and I know that is something that we’re going to talk about later as well. But I just want to understand, what did the software do? Again, I’m a neophyte when it comes to trucking, but I’d imagine you’d have a billing platform, like QuickBooks or something like that, where you send invoices. What was the software specific that you created? What does it do?

Josh Davis:

Yep. So, basically, you need dispatch software, right? So something to intake the order, put in the system, tracking and then, obviously, billing and things like that. So, we tried a number different softwares in the industry and couldn’t really find anything that really met our needs. And especially because we really wanted to customize it and make it very user friendly and things like that. So, we tried a number of different softwares in the industry and Daryl really wanted to build software, and so did my wife. I actually, to be totally honest, I was against it at the beginning, especially because-

John Warrillow:

Let’s just use something off the shelf. There’s a bunch of software packages out there. We can make due.

Josh Davis:

Totally. So yeah, I love the software now, but I can’t take any credit for that. I was resisting. I’m like, we’re struggling with cash flow, programmers are very expensive. How are we going to do this?

John Warrillow:

How much did you invest in creating the software? Ballpark?

Josh Davis:

Oh. Significant amounts.

John Warrillow:

Six figures, seven figures kind of thing?

Josh Davis:

Hundreds of thousands. Yeah.

John Warrillow:

Yeah. Okay.

Josh Davis:

Yeah, yeah.

John Warrillow:

Okay.

Josh Davis:

And increasing. Yeah.

John Warrillow:

Yeah. Got it.

Josh Davis:

And so, my wife she, previously start in the business, she was working at Hapag-Lloyd, one of the biggest shipping companies in the world.

John Warrillow:

Sure. You see-

Josh Davis:

She had-

John Warrillow:

… big containers on the ships, like movies and stuff. Yeah, yeah.

Josh Davis:

Yeah. So, she had a a business degree from UBC and she majored in transportation logistics, so she loved the industry. And at Hapag-Lloyd, she was growing in her career there before she left it for us to start the business. And she got involved in the software at Hapag-Lloyd and she became a super user, and she’d go for training and then come back and train the team members and things like that. And she really, really liked how software can automate processes and make the experience better for the users. And so, she was really pumped on it.

And I liked all the ideas, I just didn’t like the amount of money we’d have to spend for… At one point, we had four full-time programmers. And so, yeah, basically that was it. And then we made a decision between the three of us that we’re going to do this. And then the other thing we wanted, John, was, we wanted to attract good talent. We wanted to attract people to the industry that, it’s changing now. But when we started, old school-

John Warrillow:

Yeah, dirt under your fingernails. It’s a tough business.

Josh Davis:

Tough, hard culture, things like that. And we really wanted a family atmosphere, driven, passionate, still be humble, but respectful was a big one for us, people feeling valued and respected. And so, yeah, we really felt if we built our own technology and made it really user friendly, that we could hire people with no industry experience, that when they come in and the way that our software’s designed, it can train them really easily of our industry. And so, that part for me, yeah, got me really excited as well. I’m like, you know what? Yeah, if we’re tech focused-

John Warrillow:

That’s cool.

Josh Davis:

… we can attract more talent. And we did. We got a lot of people right out of university and things like that. And we’re fortunate to get extremely talented people. And yeah, I think there was many different factors, but being technology focused was, I think, very helpful.

John Warrillow:

Yeah, yep. Yeah. No, for sure. And I’d love to come back to how the proprietary software played a role in your exit and in the future that you guys have. Before we do that, though, I want to share a personal experience and then also just get your vibe on this or your reaction to this. So, I can remember when my wife and I were newly married. We started renting the second floor of this house. And then we, I think, we bought a duplex. We rented out the half. We were bootstrapping in the true sense of the word and didn’t have any money, but we were sort of, and I was try to start a business and try to figure things out and spinning all the plates and so forth. And we’d have good months and bad months, but it never really mattered because our burn was so low. She had a job, I had my job and so, it was all good.

Josh Davis:

Yep.

John Warrillow:

I had a kid. We have two kids, but I had my first kid and something primal in the back of my brain flipped the switch, and all of a sudden, I went from laissez-faire, let’s figure it out along the way, lose a little bit of money one month is no big… to my job is provider. I’m put on this earth to make sure this little creature is cared for. And to this day, I can only describe it as primal. It wasn’t taught to me, I didn’t read a book about it, it was, “That’s my job.”

And so, I, all of a sudden, got much more disciplined, much more risk averse, I think, in the grand scheme of things. And again, I don’t want to put words in your mouth, but I wondered as you hear me describe that story, you finding out Loretta was pregnant, was there a, “Hold on a second. I’m pouring everything we’ve got on paper into this business every month. Now, I’m a provider of more than just me, there’s a human life on the table.” Does that resonate with you at all, or do you…

Josh Davis:

John, totally. It hit my heart. Like you’re saying, the primal, for sure that was… And like you said as well, we lived downtown and we had a small 600-square-foot apartment that we lived in, we’re just renting and our date nights were a takeout at a cheap place around the corner. And we were very, very happy then, but busy and working hard. And yeah, so then it was just us. And that’s where we took the risk. I left the industry that I was working in and my wife left her company and so, we had no cash flow. And so, we just bootstrapped everything to get it to where it was. But yeah, definitely once we, she was-

PART 2 OF 4 ENDS [00:46:04]

Josh Davis:

But yeah, definitely, once she was pregnant, I really started thinking about that. It came over me, and that actually led to one of the reasons why I was okay with selling, even though I grew to love the industry, I was passionate about it. Yeah, that was definitely a factor. I’m like, “You know what? All my money’s tied up in here. Loretta wants the flexibility to work part-time from home, and I got to take care of this child, and we want to have more children.” We have another. He’s about 11 months now, our son now. So definitely, it changed my mindset, like, thing’s got to be cash flowing, and so that we’re able to take care of our kids. And we’re self-made. We had everything in. Yeah, so that was definitely, John … it changed for me. When Darrell and I started talking about it, that was definitely a big factor, which I was okay with selling, it was definitely my family.

John Warrillow:

That’s super helpful. And was Darrell in a similar stage in life? Was he just starting out with kids, or was he a little further along, or where was he at?

Josh Davis:

Yeah, totally. Actually, very close. He has two kids as well, and similar ages, and yeah, he was at that stage. He grew up in the industry, so even though our business was only a couple years old, he’d been in it for 15-plus years, right, starting in the warehouse and forklift driving, and drove for a couple years, et cetera. So, he was kind of at a stage where, yeah, I’d say it’s similar. He had the kids and he had a lot of capital tied up in this business and he had other ventures as well, but this was kind of the main one that him and I went all in, 100% effort, to grow this thing. So yeah, he was definitely kind of ready too, for similar reasons, with family and things like that.

John Warrillow:

And how did you broach the topic? Take me inside the room. Where were you when you said, “Hey, Darrell, I think we should look at maybe selling this thing.” Where were you? Do you remember that conversation?

Josh Davis:

Actually, I do remember the one, we talked about Loretta. But previous to that, Darrell came to me. He came to me maybe three or four months earlier, and we both were getting approached on LinkedIn, and people reaching out to us, and in my mind I was kind of ignoring. Yeah, I was ignoring it because I liked owning the business and I loved it. Although, John, we actually did read your book years and years ago, so even when we were thinking about build to sell, and we talked when we were trying out different models before we launched Speedee. We thought about building something and selling it, and we were both super excited about it.

But then I almost forgot that because I was so involved in the business, and I was running operations and I was doing all the hiring at the beginning and things like that. So, it’s funny. I ended up getting so emotionally attached to the business and to the people that I totally forgot that we talked about building something up fast and selling it one day. And then he reminded me in a meeting him and I had, like, “Hey, remember we did talk about this. Right?” And so I said, “Hey, you know what? Let’s just keep going. Let’s see what happens.” Although, when we were studying other companies in the US before we launched this model, all of them were backed financially.

Yeah, that was one of the things that we both discussed, but we’re like, “Hey, if we want to keep growing, where’s the money going to come from?” So, we kind of knew we were going to face that one day, but I wasn’t ready to have that conversation the months previous to Loretta getting pregnant. But once she did get pregnant, I remember I sat down with him. We like fishing and going on the water, so it actually started on the water, and I remember he kind of looked at me. He was like, “Hey, maybe we got to start looking. This is going to change, right? You’re going to have a baby and Loretta’s not going to be your kind of number two.” And yeah, so that’s where that happened.

But yeah, he was definitely supportive of the sale, and obviously we wanted to do it right and not partner with the wrong person and all that stuff. But yeah, he was definitely encouraging through the process. And once we talked through it, and we both had business coaches and things like that. We talked through it, like if we wanted to keep scaling, we had to do something, and our company was motivated by growth and things like that, so yeah.

John Warrillow:

Where does it go from there?

Josh Davis:

After that conversation?

John Warrillow:

Yeah.

Josh Davis:

Oh, it goes from there. We started chatting to a number of different people. We had talked to M&A advisors. We had some meetings with strategic companies, large trucking companies, Canada, US, and things, that wanted to buy us. So we did a little bit on our own, and then we ended up having a M&A broker bring the actual two people to the table. But one of them was the people that we sold to, which is a private equity company in the US, and then they have one of the largest trucking companies in Canada as well.

John Warrillow:

And was that advisor, that broker, working … Brokers refer to, or M&A professionals refer to, having a buy-side mandate or a sell-side mandate. A buy-side mandate being they’ve been hired to go find acquisitions. In your understanding, was that M&A professional engaged by the buyer, the acquirer, to find businesses to buy? Or were they-

Josh Davis:

He actually had a couple people that were interested, but he wasn’t engaged by them. They do a lot of transactions in supply chains, so yeah, they approached us and said, “Hey, we got a couple people that feel it’d be a good fit for you.” And then we negotiated kind of a fee structure that, yeah, if the deal got done, then they would get paid a fee.

John Warrillow:

Got it. So you engaged with this M&A professional so that they were representing you in this transaction?

Josh Davis:

Yes, yes.

John Warrillow:

Although they did have a couple of buyers in mind. That makes sense. So, what was the next step? How many folks did you get on the hook interested in the business?

Josh Davis:

We had quite a few meetings, a lot of phone, and obviously there was teasers sent out and things like that, so a substantial amount of that. And then in person, kind of sit down, boardroom, people flying across the country and things like that, we had serious people wanting to buy it. It was about six or seven.

John Warrillow:

Got it. And I’d be curious to know, in the teaser and the confidential information memorandum that the M&A professional was using, what role did this software play? Was that mentioned that you developed this proprietary software, or was it sort of scrubbed out of that material?

Josh Davis:

Ooh, that’s a good question. We were not promoting. I don’t believe it was in there, and if it was, it would’ve been something like, “Software’s not available.”

John Warrillow:

[inaudible 00:54:22]

Josh Davis:

But yeah, we didn’t really want to sell our software. We wanted the ability to potentially pivot into software. So, yeah, we had one private equity company that did want to purchase us, but they wanted the software as part of it, and we decided not to go that way. But yeah, I can’t specifically remember what it said about the software.

John Warrillow:

Okay. That was really my question, going into it. I should have asked it differently. Going into it, you knew that you wanted to carve out that software and sell effectively the traditional trucking asset-light brokerage business, but maintain the ownership over the dispatch software that you created for future.

Josh Davis:

Yes.

John Warrillow:

Got it. That’s super helpful. And so, where does it go from there? You get six meetings, people flying all over the country. Was it a classic sort of transaction where the M&A professional is trying to coalesce offers at around the same time so you could sort of play one off the other, evaluate one off the other?

Josh Davis:

Yes. Yes.

John Warrillow:

What was that like?

Josh Davis:

Yup, yup, so we did that. We had a couple offers come in, and some lowball offers as well, which we weren’t interested in, and we weren’t being greedy. We knew we’ve only been in … at that point, when we started talking, a couple years in business, right? So, we knew we weren’t going to get a large multiple, and that’s where we started realizing we’d have to do an earnout structure because people were a little bit scared, like, “How did these guys grow so fast? Is it going to continue?” All that stuff.

So, yeah, we had a number of different offers came in, and yeah, it actually was the last meeting we had. I actually was getting kind of frustrated with the meetings, John, because we’re also running the business at the same time, right?

John Warrillow:

Sure.

Josh Davis:

And so you’re focused on growing the business, but at the same time, you’re meeting with people talking about selling it, so, it was hard. And then also for the team as well, we got all these guys in suits coming in through the office and looking, and then we’re going to the boardroom and things like that. Yeah, it was definitely a hard … and that for me, I was like, that was kind of my limit there. Getting in those last couple meetings, I was at a point where, yeah, I was like, “We got to figure out one of these guys. I don’t want to keep doing …” because it was really distracting from the business. And we were on such a growth tear that I didn’t want to lose sight of that.

We were fortunate-

John Warrillow:

And did you feed that information back to the M&A professionals, saying, like, “I’m done with this process”? Did you sort of say, like, “We got to bring this to a close”?

Josh Davis:

At one point, yeah, I got frustrated. I remember I was talking to them and I was like, “Listen, if this isn’t going to work out, these guys don’t, then we’ll figure something out.” And-

John Warrillow:

Was Darrell on the same page, or was he more like, “No, no. Stick with it”?

Josh Davis:

Darrell, Darrell trusted me. Multiple times he said, “I’ll support the decision that you want to do, but here’s what I’m thinking.” Yeah, he felt it was the right move, but if I really said, “Deal’s off the table. Let’s keep going,” I believe he would’ve done it.

John Warrillow:

What was his operational role at the company at the time?

Josh Davis:

He was doing mainly focus on sales. His passion was sales, and he had so much industry experience. He’s very good at it and very driven, amazing salesperson. And so, yeah, that was his focus, and so I would run the ops, but I would do sales as well, so when I would come … Yeah, go ahead.

John Warrillow:

No, forgive me. I didn’t mean to interrupt. I was curious to know you, brought it up, an issue that I just didn’t want to forget to ask you about. How did you explain the guys in suits running around in the boardroom to your rank-and-file employees?

Josh Davis:

Funny enough, not till later, people, maybe even a year after the deal was done, they said … Not many people asked, but a couple of the people did. I can’t remember what we said. Actually, we were honest, where we said, “Hey, we’re exploring different options to look for partnership to help fund growth.” And people knew, yeah. We like to be transparent.

John Warrillow:

Sure.

Josh Davis:

And at that point we didn’t even know which direction we were going and things like that with this. So, yeah, the people that did ask, and kind of key employees, we said, “We’re looking for a partner to help fund growth so that we can keep growing this thing.”

John Warrillow:

Got it. So, you’re frustrated. The process is, you’re taking your eye off the operational ball. You’re like, “Okay, if these guys don’t make an offer, I’m pulling the plug here and getting back to business.”

Josh Davis:

Yeah.

John Warrillow:

What happens next, assuming you got an offer?

Josh Davis:

We did. Yup. We ended up getting an offer, and what happened? Well, we got a few offers, but this one that we actually liked because it had the private equity component, multi-billion-dollar US private equity fund. So, they got capital, they have logistics and trucking, and the company we fell under was one of the largest trucking companies in Canada. So, it had aspects of money plus some strategic for us, so yeah, we ended up deciding to move forward, and some similar values and outlook on business and things like that.

Actually, one of the things that really resonated with me personally is, one of the guys that actually represented the large trucking company, as part of it … He was the one who was in the middle of doing the deal with us between like Darrell and I, the M&A broker, the trucking company, and the private equity. So for me, I ended up building great relationship with him and look up to him as even a mentor. But he ended up building up a business, a logistics company, similar to ours, but different, but asset-light and sold it to these guys. And it worked out well for him, and he was still with the company five years later, so yeah, that really gave me comfort that we’re dealing with a guy that has built up a business. He sold it, exited, it went well, and so, that really gave me comfort that these were the right guys to go with.

John Warrillow:

And how did their offer compare? I know we can’t talk specifically about the offer price.

Josh Davis:

Sure.

John Warrillow:

But other sort of qualitative attributes, how was their offer materially different than the others you received?

Josh Davis:

Yeah. The other offers weren’t something we would’ve … There was only one other offer we wouldn’t … The other ones were too low and things like that. It just didn’t didn’t make sense for us, so we were on-

John Warrillow:

You had some lowball stuff that you had to carve off, yeah.

Josh Davis:

Yeah. We were on a upward … That’s why it was hard to even evaluate it is because each month it’s growing, right? So, it was challenging. Yeah, the one company that we went with, it was a fair offer. It was actually a fair deal. The other one that we were considering was a full-on private equity company, so no strategic mix with it, and it was a pretty good deal.

They wanted the software, though. The software was a big component for them that they were really excited about. So, once we kind of weighed both options, we felt if we go this route, yeah, we get 100% out of the operating company, and then we still have our software to do something with, so that’s ended up what we went with. But the other offer, it was a decent offer as well. It was just, this enabled us to keep our software, that me personally, my wife was really a big part of the process of building it, and things like that. So, it was something that, yeah, I wasn’t ready to let go.

John Warrillow:

Yeah, yeah, yeah. No, for sure. Now, with most private equity deals we’ve covered on this show, they’re usually the kind of deal where they take a majority ownership, 51%, 60%, 70%, 80%, but they ask you to carry some equity through. And again, if we’re getting into territory you can’t share, that’s totally fine. But how do they structure you staying on? Usually it’s either an equity role or some form of earnout. Which did they use, or maybe a combination of both? I don’t know.

Josh Davis:

Yup. In the way that this one was … The other one, there was equity role in it, but the software component, things like that, we decided not to go with that. Yeah. There was no future equity, but there was an earnout component, which I can’t talk about details, but it was a decent, yeah, it was a good kind of earnout package. Obviously there’s risks in earnouts. Sometimes I think about it now, it would’ve been easier to just kind of sell and get everything and do some sort of transition out.

But I read this article in Forbes, and it is kind of like that way. It’s like your business, you’re building up a baby, and it’s like giving your baby up for adoption and still living in the same house, right? And then even though during the earnout, we’re still totally running the business, but you still have a boss, and there’s boards and there’s all these financial meetings. Which, John, it was a great, great learning experience for me. It really helped my skills, especially on the finance side, but yeah, it’s just different.

The way it was structured, the earnout, yeah, we ended up doing an earnout. But most of the companies, any of the ones that were offering, it was going down that route anyways.

John Warrillow:

Yeah. Gosh, that is an incredibly good analogy. You read about that Forbes article, giving up your baby for adoption and yet living under the same roof. If that doesn’t paint the picture of what it feels like, I don’t know what does. That’s-

Josh Davis:

For sure, yeah. Yeah. And it’s funny, I didn’t realize that until later. That’s when I really kind of realized how I felt. Obviously, the business is growing, and we’ve done really well and things like that, and that ultimately led to my decision to step down as CEO. It was about three weeks ago, officially, was I just got to the point where I just realized I don’t own the company anymore. And things do need to change in integrations and all that stuff, which now the company actually has something to lose, right? We got it to a substantial point where some stability and the direction that the overall board needs to go, it totally makes sense. And I had meetings with them and it totally makes sense, and it’s good for the company and stability and all that stuff and opportunities for growth.

But I just personally just realized that I’m just not a company guy, and to go to that next phase, I wasn’t the right guy to do it. And to be honest with you, it was one of the hardest decisions in my life to eventually leave, but yeah, I had to do it. And Darrell left, I mean, right after the earnout was kind of complete, and so he was gone, and obviously my wife was gone. His brother left as well. He was a partner as well, and so I was kind of hanging on and trying to see if I could continue on to take the company to the next level. And then I realized, the integration and things that need to happen, I wouldn’t have been the right guy for the job, so I decided to step down.

John Warrillow:

Well, congratulations on being back in the land of entrepreneurship. I welcome you back with open arms.

Josh Davis:

Thank you. Thank you. Thank you. Yeah. Yeah. I feel good. It’s only been three weeks, but-

John Warrillow:

Good for you.

Josh Davis:

… steps forward.

John Warrillow:

Yeah. Yeah. And you’ve got the software, and so I’d be curious to know, and again, I’m not sure how much of this you were involved in, or whether you sort of delegated it completely to the lawyers. But how did you legally carve out this software? Is that just a note in the share purchase agreement, or was there a legal structure you had to set up to put it inside? How did you legally do that?

Josh Davis:

Yep. Yeah, it had to be in our APA agreement. It had to be-

John Warrillow:

APA means what?

Josh Davis:

Asset purchase agreement.

John Warrillow:

Okay, so it was an asset, not a shared deal. Okay.

Josh Davis:

Yes. Yes.

John Warrillow:

That’s helpful. Yeah. Okay, good.

Josh Davis:

And so that had to be in, yeah, it had to be a part of that. It was excluded, and then there’s some sort of structure of how things will go forward once the earnout’s done.

John Warrillow:

That’s helpful, for sure. And did you look at, with Darrell, the pros and cons of an asset deal versus a share deal? Was that-

PART 3 OF 4 ENDS [01:09:04]

John Warrillow:

The pros and cons of an asset deal versus a share deal. Was that part of your evaluation of these offers?

Josh Davis:

Yep. Yep. We did. And I’m not an accountant, but yeah when we looked it was really the best way of going about it. There’s that lifetime tax, I can’t remember what it was, but basically we didn’t qualify for that because we were only in business for a couple years. So yeah, that’s the route we ended up going.

John Warrillow:

Yeah. And to my listeners, I would just encourage everybody to talk to a really knowledgeable accountant-

Josh Davis:

Definitely.

John Warrillow:

About the after tax proceeds of various legal structures. Generally speaking an acquirer could buy your assets or your shares. Depending on what tax jurisdiction you’re in there may be a preferable tax treatment of some forms. So this goes well beyond the kind of scope of what we want to do on this show, but really it is critical to talk to an accountant about the after tax proceeds of various legal structures, share purchase versus asset. And it sounds like you did it in your case and got comfortable with that.

Josh Davis:

Definitely. Yeah.

John Warrillow:

That’s super helpful. Tell us about what’s going on now. So you’ve been able to retain this asset being this software, this dispatch software that you created with your wife. Where are you at now? Where can people learn about that? That kind of stuff.

Josh Davis:

Yeah. You can go to our website starktms.com. And yeah, it’s basically we’ve made some updates to it to make it a little bit better for the market, because it was quite customized towards our business. But yeah, our listeners can go on there and request a demo. And yeah, happy to kind of go through it. I think the unique thing about our software, John, was it was built by logistics freight brokers. It was built by us. Whereas there are softwares that are built by guys that are in the industry. But yeah, we’ve took in kind of a unique kind of look at it and making it user friendly and automating processes and customer reports and things like that. So yeah, we’re excited to take that to market, that’s one venture that I’m working on right now. Yeah.

John Warrillow:

How did the private equity acquirer treat the land you and Darrell and the partners owned? In most of these deals I’ve seen you basically lease back that for a period of time? Is that the way you structured the land piece?

Josh Davis:

So the actual place that we… We moved a couple times because we we’re growing. We actually started in the basement of Darrell’s dad’s trucking company and then knocking down every single wall until we couldn’t fit any more people in there. But fortunately for us at that point we didn’t own anything that the company was currently operating out of.

John Warrillow:

Okay. [inaudible 01:12:36].

Josh Davis:

That was a non-factor. It almost happened because we were about to potentially move the team into one of our properties, but we ended up not doing that.

John Warrillow:

Got it.

Josh Davis:

So it was a non-issue

John Warrillow:

That’s helpful. Are you up for a quick lightning round of questions to wrap us up?

Josh Davis:

Yeah, yeah. For sure.

John Warrillow:

Okay. These are five or six questions, I’m just going to ask them. I won’t follow up with questions on my own, I just want a quick answer. To you, what is the slimiest trick? You talked to lots of acquirers in the time that you were sort of shopping the business. What was the slimiest trick that an acquirer tried to use on you?

Josh Davis:

The slimiest trick? I’m trying to think. Overall I think it was pretty good, John. I think we’re pretty fortunate. But yeah I think one of the things, there was one company in particular that seemed extremely interested. But as we were going through it and the questions that were being… I didn’t think they were actually interested in what was going on. I think they were actually just trying to get information. And so as we’re kind of sharing, I just kind of got out this kind of check in my gut and I really felt that it wasn’t being sincere. And as soon as we left the meeting I sent Darrell a text and I said, “Hey, let’s not meet with these guys again. They’re definitely just fishing for info on what we were up to”. Yeah.

John Warrillow:

Yeah, yeah. Heard that one before. Good. Okay. Biggest mistake you made in the process of selling your company? It sounds like it all worked out well, but if you could rewind the tape, what might you do differently?

Josh Davis:

Sorry, say that again?

John Warrillow:

Yeah. If you could do it all over again, go back to that fishing trip that you were on with Darrell where you’re like, “We should look at selling this thing”. Today, if there’s one thing you might do differently, what would you do?

Josh Davis:

That’s a good question. It’s a good question because things were happening so fast and we’re still operating the business and it’s growing. Because we started doing things on our own at first, yeah I think I probably would’ve engaged an M&A advisor earlier. I think that’s important, especially if you’re going to do the dog and pony show and all those things. Yeah, I think it’s helpful to get an M&A advisor involved early and to be involved in that process and fish out people that are just kicking tires and things like that. So yeah I think next time, next venture if it comes to that, I’d interview, find the right M&A broker. And I’m actually doing that right now for potential acquisitions. So I’m actually hunting and meeting different M&A guys and trying to find someone that really fits my personality for kind of what I’m doing with my wife and I’s family office. Some acquisitions and businesses in real estate and investing in businesses and things like that. So yeah, definitely get a trusted advisor. It saves a lot of time and someone to get your back. I think it’s very key.

John Warrillow:

Got it. What was the lowest emotional point you reached during the selling process?

Josh Davis:

Yeah, to be honest the day we sold I was in my car in the parking lot crying. Even thinking about it gets me emotional. Yeah, I was worried. Just building something up, and I like being an owner. And even though I had pretty close to equal equity to Darrell, but he had control. But we’re partners, the relationship worked well, I was operating the company. And so yeah, I knew it was going to be different once we sold, even though I was open to the possibility of potentially staying on in the future. But yeah, I broke down in the car. I was crying. I phoned a mentor of mine and he walked me through it and said, “Hey, you made the decision, now you got to move forward. And you don’t know for sure if it’s going to work, if things are going to work out. But you’ve made the decision, now it’s time to move forward”. And I don’t cry often, but that was a time where all these emotions came out.

And even I was supposed to speak, so there was the CEO of the main company, Darrell and I. And I went into the boardroom, I told Darrell, “I can’t speak”. I’m like, “I am not in a place to speak right now. I know we made the decision and I’m moving forward”. And he knows me, when I make a decision I follow through with it. And he was a little bit like, “Come on, you got to make sure people know it’s okay”. I’m like, “You want me up here crying?”. And we kind laughed a little bit. And so he’s like, “Okay, I’ll do it”. He really wanted me to do it, but he’s like, “I’m going to do it, but you need to be the person involved in all the meetings with employees”. So he wasn’t involved in that, I was so he’s, “Okay, I’ll do this. I can give the speech and why we did it and everything. And you…”. Because I had connections with employees, and a lot of them I hired at that point. I was involved in the hiring process for almost all of them at that point. So yeah, I sat down with HR and each person came through and then I answered kind of one on one questions, and that started the next day.

But yeah, I was an emotional wreck. And fortunately my wife came and our baby Lily was a few months old. And yeah, I sat on the side there with my wife and kid as we basically called everyone. We were in this big warehouse, we had kind of a unique design. Open concept, 10,000 square feet, built walls in a warehouse. We had a ping pong table and we had a fun kind of culture pre-COVID. Good atmosphere and culture, fun. And called everyone up to the ping pong table coach area TV, and the CEO and Darrell gave a great speech and I was just sitting there trying not to cry.

John Warrillow:

Well, you’re not alone. What was the highest moment you reached in the exit process?

Josh Davis:

The highest moment in the exit process?

John Warrillow:

Like go from fishing boat to today. That’s the exit process I’m referring to.

Josh Davis:

It’s a great question, John. The highest moment I think really was… It just happened so fast. The business was growing extremely fast and all through the earn out. And actually it kind of went from another one of my lower moments was saying goodbye to the team and letting everyone know I was going. That was another moment in my career where I had lots of tears through the boardroom, me and my team and all that stuff. And so that was tough, and this is just recently. But then we all got together and had dinner and then we actually had my key direct reports over to our house and just going through and celebrating our successes. And that was one of our values, and we did a lot of celebrating our successes pre-COVID. I don’t think we were really great at it during COVID, we we’re trying to just keep everyone healthy and keep the business growing.

But I think a high moment for me was hearing feedback from the team about working for me and Loretta and Darrell and the impact that we had on them. That was definitely a high moment because some of the things that were even said, and I got cards from all the employees. And reading those cards, yeah it just made me realize that we did have an impact in what we did. We did treat people well. We obviously weren’t perfect and we make mistakes, but we really tried our best to take care of people and make sure they felt valued and respected and had opportunities to grow. So that was a high moment.

And then celebrating the successes. We were one of the fastest growing all industry companies in BC, BC based. And one of the fastest growing logistic companies in Canada. And so going through that and hearing the team talk about all the moments and the crazy things we were doing to keep things going just really hit me in my heart. That we did build something great and nobody can ever take that away from us, what we were able to accomplish as a team. And a lot of the key reports were with us really early on at the beginning. So just reflecting back with them, that was a high. Even though things have changed and are transitioning, we built a great company and we had a lot of struggles but a lot of successes and everyone needs to be proud of what we built. And it wasn’t just me and Loretta and Darrell, and we’ve won awards and things like that, but we always give credit to the team. And without a doubt, it’s not 1, 2, 3 people that builds a company, it’s really a team. And yeah, I was just happy to celebrate that with the team. And actually all the key management team are continuing on. And since we left they’re moving up another level and things like that. So yeah, that was definitely a high.

John Warrillow:

That’s great. And that’s one thing that a lot of entrepreneurs don’t always think about, is that when you leave and sell, although that can be emotional and wrought with lots of challenges, but when you leave it does open up a whole other rung on the career ladder for all those people behind you. And so it creates great opportunities for them as well.

Josh Davis:

Yes. Yes.

John Warrillow:

What resources did you rely on to educate yourself about the exit process? You’ve already been generous acknowledging Built To Sell.

Josh Davis:

Built To Sell for sure. Yep.

John Warrillow:

Yeah. What else did you rely on? Was there a course, a podcast, an online tool, anything that you sort of educated yourself about the process?

Josh Davis:

Sure. I’ll definitely be kind towards you, John. For sure the book at the beginning. I actually just downloaded it again, I want to listen to it again. And I was doing other deals. I was in the mining industry so I was working on my own deals and things like that before I pivoted into logistics. So I was involved in bigger deals in the mining industry and things like that. But building up a startup to that I’d never done. So I think reading your book was helpful, but I probably didn’t retain a lot of it at that point. But yeah I’d say one of the big things listening to your podcast, I mentioned that before we went on the air here. But I love this podcast.

John Warrillow:

Huh, that’s great to hear.

Josh Davis:

I love hearing the stories about the entrepreneurs and the struggles. And yeah so I think for that, to be totally honest with you, that really helped me get in a mindset of learning from the other entrepreneurs. And I think you’re a great I interviewer, and the questions you ask really unlock things. I love how you do it. And sometimes you keep asking until they answer the question. I felt the way that you did it really helped guys like me sit there and you did your best. And obviously there’s legal things in it that some people can’t answer, but it was really helpful. I think you get great information from it. So yeah, to be honest with probably the biggest impact for sure was Built To Sell. And aside from that, I read a lot of business books. I’m a very avid reader. But mainly more so on leadership and biographies and things like that. And then reading a lot of stuff online and materials at different private equity companies and things would send us. But yeah, to be totally honest and nothing to do with you interviewing me on the show, but probably the biggest thing that got me kind of mentally prepared through the journey was for sure your podcast.

John Warrillow:

Oh, that’s very generous to you to say. Thank you for that. Tell me you bought yourself a trophy. You and Loretta went out and bought a farm or bought some super jacked up truck or something to celebrate this and commemorate this win. Please, tell me.

Josh Davis:

Yeah. You know what we did? We actually went to Italy.

John Warrillow:

Oh, good for you.

Josh Davis:

So we got-

John Warrillow:

Back to the place where it all started.

Josh Davis:

Back to the place where it all started. Honestly that was part of it. And yeah, it was a bucket list thing for us. And we wanted to also take my mom. We took my mom and Loretta’s mom as well. So we had both the moms, we had our two kids. My mom’s Italian on both sides of the family but never been back to Italy. And so it was always like a dream of hers to go back. So I took the family on an amazing vacation.

John Warrillow:

Oh, that’s got to be special.

Josh Davis:

We upgraded seats on the plane. We got a nice Villa. I really just wanted to treat my mom and my mother-in-law really well as well, because they were super supportive of Loretta and I through this whole journey. And yeah so we went there and we seriously had the best time. Probably gained a few pounds from it. But yeah, we really, really had an awesome time. And so that was kind of our trophy thing. We didn’t really buy anything major. It was a trip for us, experiences. Loretta and I, even though we’ve been successful, we’re self made, we try to be humble. We’re not flashy. I’m from a small town, she’s from a small town. She’s raised on a farm. So we really believe in experiences. And we do some giving, we do Kids At Risk and things like that. That’s a big, big part of our life. But the trip was amazing, John.

John Warrillow:

Oh, good for you.

Josh Davis:

It was awesome. Yeah.

John Warrillow:

Good for you. I’m sure your mom and your mother-in-law have very fond memories of that. Very grateful.

Josh Davis:

Yeah.

John Warrillow:

Josh, this has been awesome. I’m so grateful to you for sharing your story. So thank you. Where can people find you? I’ve got starktms.com as the URL.

Josh Davis:

Yep.

John Warrillow:

But if people want to reach out, is LinkedIn the best bet? Or what’s best?

Josh Davis:

Yeah, for sure on LinkedIn. That’s where I’m kind of most active. I don’t have a personal website or anything. But some of the things I’m doing on there, acquiring businesses, investing in businesses. I’m really passionate about helping entrepreneurs kind of go through things that I went through and how I can help. So yeah LinkedIn for sure. And if people want to add me I’m happy to connect with them on LinkedIn.

John Warrillow:

That’s awesome. And we’ll put your profile because there are a lot of Josh Davis’s out there.

Josh Davis:

Yes.

John Warrillow:

I’ll put your specific profile in the show notes at builttosell.com so you can do that. Josh, thanks for doing this.

Josh Davis:

Yeah. Thanks a lot, John.

Colin Morgan:

I hope you enjoyed this week’s conversation with Josh Davis. For show notes including links to everything referenced in today’s episode, along with definitions for some of the more technical terms referenced, go ahead and visit the episode page which can be found at builttosell.com. If you’ve listened to this episode and you know of someone who would be an absolutely perfect guest for Built To Sell Radio you can actually nominate them. You can head over to builttosell.com/nominate, where there you can either nominate someone else or nominate yourself. Again that is builttosell.com/nominate. Quick note, if you aren’t subscribed to the podcast at builttosell.com, I would highly encourage you to head over there and subscribe on our website for articles, updates, and so much more. Special thanks to Denis Labattaglia for handling the audio engineering, and thank you to the entire community of certified value builders who help us bring our message to you. I’m Colin Morgan, talk to you again next week.

PART 4 OF 4 ENDS [01:30:35]