#741 Building A Landscaping and Home Service Empire w/ Mike Botkin

Mike Botkin is the Founder of Benchmark Group. In this conversation, we discuss purchasing every day businesses and building a scalable service company. This episode is a must if you want to get into the world of business acquisition and how you can get started.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Mike Botkin is the founder of Benchmark Group. I really enjoyed this conversation because Mike has been rolling up various landscaping and home services companies. We talked all about the economics and the advantages he has in that market. It's a fascinating conversation and I hope you enjoy it just as much as I did.

• 0:29Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 0:52Anthony Pompliano?

  We've got Mike here. Mike, how are you?

• 0:55Speaker 02

  I'm doing well, guys.

• 0:56Anthony Pompliano?

  So Mike, what's really fascinating about this is you've got a background where you did some stuff in technology and then you realized this other market opportunity and you went over and you started to kind of build a great business here in more of like home services. Can you just walk us through, you've done two acquisitions is my understanding right now, but just walk us through maybe at a high level, like what is the strategy of what you're trying to accomplish?

• 1:18Speaker 02

  Yeah, exactly. So we're in home services. We are, our acquisitions so far have been landscaping, but we are, our investment thesis is broad in terms of just general home services. We want to buy businesses that are ran by service people, not business people. And that's not disrespectful to them because a lot of them live like kings in their own kind of area, but we feel like we can come on, we can add systems and processes, we could add capital and just an overall better business strategy than what they've had and magnify the multiple that we can get. And we're seeing that a lot of the businesses that we've inquired about and we've acquired, the multiples that we're paying for, you

• 2:03Speaker 02

  know, are 2 to 3X, whereas in software, we were paying anywhere from 10 to 15X. And you know, we're seeing a good back end return on, you know, the home service industry.

• 2:15Anthony Pompliano?

  Got it. And so when you start to look at these businesses, walk us through kind of the dynamics of a deal, right? So the first business you bought had kind of sub $1 million in revenue. How do you find the business? How do you think about the valuation? What's that negotiation like? And then how do you actually take over ownership? Do you run the business? Do you have somebody stay and run the business? Like, just walk me through that first transaction?

• 2:35Speaker 02

  Yeah, so it's, you're familiar with the search fund model. I purposely did not go through the traditional search fund model to the degree of the criteria that a search fund model looks for, which is ask me this EBITDA with this revenue, and it has to meet all these criterias. And I have a big, big issue with search funds, which is probably a conversation for another day. I think they're a joke. The model that I use was I need to go prove my thesis before I go raise a lot more capital. And, which is what search funds traditionally do prior to running a business. So we went and bought a smaller business to prove, hey, do these processes work? Can I run this? Can I operate this? Can we put

• 3:17Speaker 02

  someone in place to operate it? And I manage it from a higher level. And we did that. We acquired our first one in December of 2020. It was a smaller business than what a traditional search fund will look at. And we grew it by 40% in eight months since owning the business. And that allowed us to go out and look at bigger deals, which are more traditional search funded type businesses that they acquire. And it was able, enabled us to raise more equity and find, you know, good partners and acquire bigger business. And we are about to close actually our third acquisition in the landscaping space.

• 3:56Anthony Pompliano?

  Okay, so when you buy this first business, it's a million, it's sub a million dollars in revenue. I don't know if you're allowed to say how much you paid for it, but just talk to me about how you underwrite the valuation. And then by growing it 40% in eight months, what do you do? You go sign up more people to, to cut their lawn? Or like, how does that work?

• 4:13Speaker 02

  Yeah, so this is the best part about home services, right? Because I looked at a ton of different industries and categories to see what was best for, you know, not only my personal money, but also my time, right? What I'm gonna do and this is gonna be my thesis and what attracted me the most about the home services was the multiples that you're buying it. So we bought the first one for two point four uh X of this one is on S D E so seller discretionary earnings. Traditionally, you would value them off EBITDA, but when you know it's a sub million dollar landscaping business, they're gonna trade off S D E. So we did a two point four X purchase on that. Um, we closed within thirty days. It's a very simple transaction.

• 4:56Speaker 02

  A simpler business model, not a ton of due diligence from a traditional standpoint. And we got in there, we implemented all basic type business processes. I mean, uh, answering the phones, right? Like, um, making sure the crews know where they're going and what they're doing, making sure we have drip campaigns and we have S E O set up. And a Google My Business, which was not done. And in the area we bought this, that guy in that business that we bought was like the trim daily trim. And they didn't have a website. They didn't have a Facebook page. They didn't have a Google My Business. And it allowed us to go in and buy it, you know, for pretty cheap. And when we started, and that was on market, I found that through a traditional business broker.

• 5:40Speaker 02

  And when I bought that, I got inundated with people asking if I buy their business, uh, their landscaping business as well. So to fast forward, we ended up buying one that was off market. And we paid a little bit bigger multiple, but the business was about uh five times in size. And it really is allowing us to have a platform, but it was very similar. We closed, it took us about sixty days to close on the second one. But again, it's, do you have customers? Are they true and accurate customers? Is your revenue accurate? Great, let's do it. Because we're buying it, you know, that one for just over three X. We think that we can add a ton of value to it, and if we wanted to retrade these, we would be retrading them for ten to twelve X.

• 6:24Speaker 02

  And so how can we not continue to purchase them if we're getting that good a purchase price?

• 6:29Anthony Pompliano?

  Got it. And so when you start to think about this, really what you're doing is you're buying a lawn care or a home service type business. Right? You're just saying, hey, what a good businesses do. We answer the phone. We do marketing. We've got good SEO. We treat our customers right. All that stuff. You're professionalizing the business to some degree. Is that because the owner of the business previously was too focused on actually delivering the service? So they're physically cutting the lawns themselves. They're the ones who are out in the field kind of executing, and they don't have time to also run the business. Is it because they haven't actually hired the right team? Like, how do you look at why they haven't been able to do that, but you are? Is it a knowledge thing? Is it just an effort? Is it a focus? What is it?

• 7:06Speaker 02

  Yeah, I mean, I think a lot of it's focus. And I think to answer your, you know, your question more directly. So and to give you live examples, the first business we bought, the guy was a true service guy. He was out in the field every day with the crews and checking all the customers. And we came in with an approach of we're going to layer this with an org chart and a manager and a quality control guy. And we're going to put a business dev guy in it. We're going to grow the business, right? And that that's kind of what I meant. My very first comment was we want to buy these from service people, not business people. As a business person, it sounds very simple to us, but the guy that started a landscaping business, you know, with one truck and his buddy and then grew the business to 15 trucks.

• 7:49Speaker 02

  He's never had to learn that. He's never had to know that. He's never had the need for it. It's just word around town. He's a good guy and he gets business, whereas we come in with a more systematic approach. So I think the be direct with it. I think they don't know what they don't know. And a lot of these guys get scared of more revenue because more revenue means more customers. More customers sometimes means more headache. And we look at it from a completely different approach. If we can get in and set good expectations with the customers and have good quality control and have processes and systems and training, like it's just like any other business, right? If you can do your ABCs at this level of business, which we're kind of looking at sub $10 million of EBITDA, it's really just the blocking and tackling.

• 8:34Anthony Pompliano?

  When you think about adding additional businesses to a benchmark group, is it something where you're saying, okay, we're going to buy any home service business? Do you think of it sequentially like, okay, we start with lawn care and then we maybe we'll buy like a power washing business because that's tangentially related and we'll move from outside the home into the home or like, just talk to me a little bit about the strategy as to how do you select the types of businesses that you want to acquire next?

• 8:56Speaker 02

  Yeah, absolutely. You're absolutely right. So we are kind of broad stroke. We'll look at anything from pressure washing, the HVAC, the plumbing, to tree care, to Christmas lights. There's a huge thread the other day on Twitter with a guy with Christmas lights. Well, I reached out and wanted to know if you wanted to be acquired. We're essentially looking for, A, do they have a good operator in place? And is there a need for the capital that we can provide and what would it do? But really, other than that, is it a profitable business and can we add value to it? Because we're buying them at such, you know, good pricings that if we can add value and they're already profitable, our capital should just explode them and put, you know, gasoline on it.

• 9:37Anthony Pompliano?

  Yeah, the, the, the part to me that I think is so fascinating as well is that there's a lot of people are scared of this type of work, right? It's hard work. You gotta go and you gotta do the work. Do you have a sense for how many of the operators are older folks versus younger folks? And what I'm thinking about is how many of them are digital natives, understand how to use the internet to market their business, how to use technology to run the operations versus, hey, man, we've just been doing this for 20 years. We've done it the same way. We've got a phone. We've got, you know, kind of paper records and that's just what we do. Like, well, how do you think about technology integrations and the digital native aspect of the operation of these types of businesses?

• 10:12Speaker 02

  Yeah. So the people we're buying from are more paper and pen kind of guys. And a funny story, like when I bought the first one, they didn't even have pen and paper. I asked the owner, I'm like, hey, what's this guy's route? Just so I can do an analysis on it. He's like, oh, it's this, it's this. Well, how do you know that? Oh, it's just in my head. Well, how do they know that? Oh, they just remember it. And it's like, what? Like, it's insane. And I continuously preach to the younger generation or MBA guys or search fund guys that reach out to me, get in this business, get in these lines of work because, you know, again, just basic, basic business practices and knowing how to be digitally savvy is such

• 10:54Speaker 02

  a huge plus and these industries have not had that. They've had guys that want to do the grunt work and want to, you know, be out there. You know, I'm based in Orlando and the businesses we've hired in Orlando, in the summers, 105 degrees, right? So that's different. And these businesses are ran by guys that like doing that, where I think some people that are more traditional search funds or MBAs or guys looking to get in, could come in and really elevate those business practices.

• 11:22Anthony Pompliano?

  So I'm gonna let my brothers ask a couple of questions here in a second. My last question for you is, how much of this is you want to acquire existing businesses versus you think that you would start new businesses? So, hey, we've got a lawn care business. You know what? We know that we need power washing. Oh, why don't we just go ahead and put a little bit of capital in from an investment standpoint, hire an operator and build the company from scratch versus no, we only want to go out, find people who are already doing it and then buy their business?

• 11:45Speaker 02

  Yeah, it's a great question and it's something that we're discussing internally because of the number of customers and the quality of customers we have. I think our first reaction is to look outside to acquire and bring in because we're acquiring expertise, right? Hey, I don't know shit about lawns. I truly don't. But I know how to manage an organization. I know how to get the best out of somebody. I don't know shit about pressure washing, but I can go find someone that does. And why not take an existing business? If we cannot find that for whatever reason that is, and we have a demand for it, we'll have the conversation of let's just invest our capital internally and create that. You

• 12:26Speaker 02

  know, one we looked at recently was, and again, this has like been pretty trendy on Twitter, is cleaning your garbage cans, the trash can cleaning. We looked at one, I tried to acquire them, it didn't work for whatever reason, and now we're gonna look at that internally.

• 12:39Anthony Pompliano?

  Joe, John, what questions you guys got? Mike, what's going on, man? Thanks for joining us. So I have two quick questions. So Benchmark Group is the holding company and then there's a landscaping company underneath. So my question would be, from a geographic perspective, how does this work? Are you going to have to expand to other cities, other states? Or do you just focus solely on Orlando because of the synergies that combining different companies can create?

• 13:01Speaker 02

  Yeah, so right now, we're focused on Central Florida and really more the I-4 corridor. I mean, I know you guys are in Miami now. So the I-4 corridor from Daytona to Tampa right now, just for the synergies of customers. But if there's, go back to what I said, our kind of criteria is, if there's a great business in Miami, then let's do it. If there's a great business in Atlanta, let's do it. It does have to make sense. We looked at one recently in California in Silicon Valley, and it just didn't make sense. We couldn't really add a ton of value just because of the location. But for sure, Orlando, we'll take it tomorrow. The southeast, for sure. And once we get kind of more stabilized in that regard, we'll definitely expand elsewhere, as long as it meets our criteria.

• 13:43Anthony Pompliano?

  And what made you start with landscaping?

• 13:45Speaker 02

  Yeah, so going back to your guys' conversation before I jumped on, I was a CEO of a real estate investment firm, and we had all of our own internal properties, right, that we owned and invested in. And when COVID happened, and the world was going to shut down, did shut down, I was still going to the office. I was the only one going to the office. Our CEO is in Ireland, and so is our CFO. So I was going to the office. And listen, guys, like, I had to, you know, lay off over 200 people. And like, so I'm not making this comment in disregard of that. But I was going to the office, and the only people that I continuously saw on the road was home services, plumbing companies, AC companies, landscaping companies, and a gas station, just like, full of them. And I

• 14:30Speaker 02

  was like, shit, like, I'm missing something here. We just had to lay off a ton of our staff. We don't know what's going to happen with our business in the market. And, you know, luckily, I think with a lot of other businesses, they survive. And that real estate firm is growing like crazy still. But I saw something there that no matter what, you always need your lawn cut. No matter what, you need your AC worked on. Hey, I own a landscaping business, and I still don't cut my own yard. And I'm not. It's hot as shit in Orlando in the summer, and I'm not doing it. I would for our business. But you get my point. It's something that people increasingly are not going to do themselves, and will look to house.

• 15:05Anthony Pompliano?

  I guess the thing is that you're acquiring companies that can help you do that.

• 15:10Speaker 03

  Yeah, thanks for joining us, Mike. Love the, love the thinking process you have about recession-proof businesses and also just adding your strengths to businesses where they have maybe a weakness. So my question would be, where are you going to acquire these businesses?

• 15:24Speaker 02

  Yeah, so the first one was a broker deal. So I reached out to a broker that I knew got it. The other ones, the one, the second one we closed on, and the one we're about to close on, has been off-market. The third one is a relationship deal that I have. The second one, I saw the trucks driving the road. I called the owners and asked them if they wanted to sell, right? And that's as simple as it gets. A lot of these guys are not going to have attorneys, are not going to have, you know,

• 15:51Speaker 02

  accountants that are reaching out in the traditional sense how businesses are normally acquired. See the trucks and call them, right? Do some legwork, do some, you know, foot, feet on the ground kind of work and see what happens. And when we acquire business, we get a ton of inbound from other people in that industry wanting to see if we will acquire them. So we feel like the more we acquire, the more natural, organic inbound will come to us.

• 16:17Speaker 03

  When you, when you acquire any new, we'll do lawn, lawn care for right now. When you acquire any, do you rebrand or do you keep this existing brand they already have?

• 16:26Speaker 02

  Yeah, so we did rebrand the first two acquisitions just because they were so close in Orlando together. We wanted to have a similar brand because we were, you know, using all the synergies, right? Phone systems, accounting, all that kind of stuff. So we did rebrand. But our goal, if we buy one that has a deep history in a community, whether that's Orlando or Atlanta or Miami, why change the brand if we don't have to? Because normally these businesses, again, are started by a guy in a truck or a female truck and how that builds.

• 17:00Speaker 02

  We don't necessarily want to change that, right? We want to keep that hometown kind of feel to it while adding bigger practices to it.

• 17:08Speaker 03

  Completely agree.

• 17:09Anthony Pompliano?

  So Mike, here's a couple of more questions I got for you. When you start to build these service-based businesses, you obviously get an incredible customer base, right? So I'm going to just make up some numbers here, but let's say that you've got a lawn care business, you're in the Orlando area, you're servicing hundreds, if not thousands of homes over a given year. Those are kind of your captive customer bases, whether seasonal or throughout the entire year. How much of this do you then start to think about like, all right, we're in the service business, but we should transition or add a product-based business? We should, you know, get fertilizer, we should get some sort of other types of physical products that we can sell to these same customers and almost get into like the vertical integration game versus simply just, hey, we're going to come in, we're going to show up, we're going to cut your lawn, blow your leaves and then move on to the next house every single day?

• 17:52Speaker 02

  Yeah, you're exactly right. So what we want to do is we want to take an average customer ticket and grow it, right? I think one of the best ways to grow your revenue is the existing customers you have. And our thesis on landscaping in general is vertical integration, not only from a customer standpoint of we want to be your supplier of everything of landscaping at your house, but even when we're acquiring businesses, right? So, you know, kind of a saying that I have, we want to own from the farm to the yard. So we want to own a sod company. That's where, you know, the sod is grown, right? We want to own the fertilizer company that fertilizes it. We want to own the supply chain that sells the mulch and the rocks to landscaping businesses. We want to own the tree company, the irrigation company.

• 18:34Speaker 02

  So if you look across the vertical, if you look across the horizon of landscaping in general, we want to own the entire vertical. So no matter what, we're touching it.

• 18:43Anthony Pompliano?

  Talk to me about the capital intensive nature of the business as well. Obviously you talked about, you know, these home services, they got trucks, they got equipment, they've got to keep all of that up in the maintenance. That's very different than a lot of software-based businesses. How do you think about the pros and cons of the capital intensity and also the kind of physical nature of a lot of the CapEx or the assets that you own?

• 19:05Speaker 02

  Yeah, so I think we're more, I look at us, we're more in a logistics business than we are in a landscaping business because of what you just said. Our biggest assets by far are our equipment, our vehicles. So a logistic, if I didn't tell you what business I own and I said, we have guys that have to get from point A to point B. As fast as possible, as efficiently as possible, and we get from point B to point C and deliver a quality of goods. You would not be able to guess I was in a landscaping businesses without a few tries. So whoever can master the logistics of this will win and. So that's why I think we're in the logistics business, right? The transportation business.

• 19:44Speaker 02

  And to answer your question, we look at that as their trucks, right? They take fuel, they take maintenance. It's a huge, huge liability and expense for us. We are actually going to be transitioning this over the next couple of years to electric trucks and electric vehicles. And to reduce the fuel and to have just better lasting equipment. And we're trying to be one of the first ones to do that fleet across the entire board. We have some competitors that are looking to do it. And guys, like when we talk about the landscaping space in general, just to give you like an idea because. When you first say, hey, when I first told my mom, I'm leaving a real estate investment firm and I'm going to go do landscaping, she cried, right? And just because the, the nature and notion of it, but.

• 20:27Speaker 02

  The top three landscaping businesses in the country all earn over $2 billion a year. Uh, one of them's publicly traded and another one's going to be publicly traded. The top 100 companies in the country do over $16 billion. So a, a, and it's a super fragmented space. So when you look at some of the, you know, your competitors and what they're doing. It's a big space, even though it's super fragmented and cap, the capex and the equipment is something if we can be a, a first mover on. And take advantage of that, we think we can get some inroads.

• 21:02Anthony Pompliano?

  The one other thing that I think is really fascinating as well is, uh, how do you think about word of mouth versus digital marketing, right? So word of mouth, I would assume most of these lawn care businesses or home services businesses. Hey, I need somebody to cut my lawn. Ask my neighbor who, you know, your lawn looks great. Who cuts yours? Okay. They introduced me. But I'm assuming that there's a, a huge white space as well with digital marketing for these businesses in, in order to drive top of funnel. Kind of, uh, uh, lead acquisition, if you will.

• 21:28Speaker 02

  Yeah, so residential lawn maintenance, which we are not really a part of, is through more word of mouth and would help with SEO and digital marketing. We are playing in the commercial space, your hotels, your banks, your schools, your hospitals. And that is more biz dev and more relationalship, uh, acquisition of customers versus your traditional um, SEO and just word of mouth in your trucks. But a lot of these businesses grow to do a couple million bucks a year. By word of mouth, right? Everyone knows their neighbor. Everyone has a guide. Um, everyone sees your trek at Wendy's or at McDonald's or just on the road. And that's huge for these businesses. And so branding is super important. And to answer an earlier question.

• 22:11Speaker 02

  With this one, that's why we don't necessarily want to change the brands of everyone that we acquire. Because those brands mean something in that community. But on the commercial space, it's really about relational, uh, relationship selling.

• 22:22Anthony Pompliano?

  Last question, actually, this time is, uh, commercial versus residential. Why commercial? Is it just bigger contracts, B to B? Uh, you've got kind of easier targets. You know who they are. You know where they they are located. You don't have to get into the uh, kind of higher cost acquisition of the residential? Or is there some other reason?

• 22:39Speaker 02

  No, a lot of it is with, uh, human capital, right? So a homeowner will command the same attention of us as a hospital or HOA or any commercial business would. Except the homeowner is paying, you know, a hundred and fifty bucks a month and the commercial place is paying us twenty thousand bucks a month. So it's really just where do we want to spend our time? And we think on a re-trade basis, um, we are able to re-trade commercial contracts a lot better. If we ever get to that point of selling, um, you know, for that ten to twelve X multiple I talked about earlier, then we would a residential because you know, people don't really want to buy a residential landscaping business as much as commercial.

• 23:20Speaker 02

  When you get into the other trades like HVAC and plumbing, it doesn't matter if you're commercial or residential.

• 23:26Anthony Pompliano?

  Makes sense. Where can we send people to find you on the internet or find more about the business?

• 23:31Speaker 02

  Yeah, absolutely. Twitter has changed my life completely. It's where we connected. I raised both of our funding rounds completely through Twitter. So Twitter has changed my life, you know, like you want to believe. My Twitter, it's pulled up on the screen. It's @mikebokken underscore. That's the best place to reach me.

• 23:49Anthony Pompliano?

  Awesome, man. You're a fucking, it's not supposed to be an F word, kid show, kid show, kid show. You're a legend, dude. I get excited about this stuff because I think there's two things that end up happening, right? You need good operators, people understand capital markets, go buy the businesses, etc. But two is at the end of the day, it's just hard work, right? And there's a lot of people who, who I think forget that there's massive opportunities in these types of businesses. So I'm a big fan. Please keep it up and we'll have to bring you back as you continue to build the business. Maybe when you do the next acquisition, we can, we can bring you on. We can talk through kind of the details of it.

• 24:20Speaker 02

  Yeah, absolutely. Thanks, guys.

• 24:21Anthony Pompliano?

  All right, buddy. Talk soon.