The first days after acquiring a small business are critical and that is why, as part of our Private Market Insights conversations on Twitter Spaces, we initiated the “First 100 days” mini-series. In our second episode dedicated to this subject, we have invited Kaustubh Deo, President at Blooma Tree Experts. His story added for us a new dimension to the fascinating journey of taking over an established business and transitioning it to the new ownership. His perspective is that of a single-acquisition owner and, subsequently, operator, which is in many ways different from the HoldCo strategy we dived into together with Justin Vogt in our first episode in this mini-series. If you haven’t already listened to Justin’s story in our September episode, we definitely recommend it.
Kaustubh grew up in Redmond and went to high school in northeast Seattle. After a 10-year stint on the East Coast, he’s excited to be back home in the Seattle area where he decided to buy a tree care business because of its potential for growth and its ability to provide a service that is essential to the community. As the day-to-day operator of Blooma Tree Experts, Kaustubh now manages all things finance, business administration, HR, and more. He has been able to transfer his skills in financial analysis and negotiation to his new business and below you will find some of his main learnings he was kind to share with us.
You can check out the full episode here:
Before getting into search, Kaustubh worked in private equity, focusing on businesses of over 30 million EBITDA. For his search, he ended up finding the business he now runs through a business broker who was representing it. After he submitted his LOI (letter of intent) in November 2021, it took fourteen weeks to close the business. The office of Bluma is very close to where Kaustubh went to high school, which made him appreciate the deal even more, as he was already familiar with all the neighborhoods in the area.
Owner dependency factors
Bluma was a father-son business and they did both the tree climbing and the sales, while the admin part of the business was mostly handled by the owner’s spouse. Kaustubh had to first test whether the transfer of responsibilities was even possible given the significant amount of trust and goodwill built into the relationships between the owner and his customers. Kaustubh worked collaboratively with the owners on this piece first before moving forward with the diligence process. This is an important lesson to current searchers: if a business is too dependent on a single person’s relationships, it’s not an attractive acquisition, even if the financial models work well. If existing customers leave, so will the cash flow.
Acquiring a successful business requires both knowledge and humility. Kaustubh, an outsider without experience as an arborist, faced a steep learning curve when it came time to start managing his new business. In this position, it’s important for new owners to acknowledge that they may not have all the answers right away – Kaustubh made sure to ask questions, validating assumptions with industry experts, trade groups, magazines, and other educational materials. However, it’s also important for business owners to be leaders in their industries. While early humility is essential to building trust early, it’s equally important to build expertise over the first 100 days post-acquisition. For example, Kaustubh, with his background in private equity, performed deep research into the local competitive landscape, allowing him to acquire essential knowledge around pay ranges, writing proper job descriptions, and identifying important competitive assumptions that needed to be tested through experimentation.
Initial working capital
Working capital contributions can be a tricky hurdle to overcome near the end of the due diligence process for an SMB acquisition. However, the amount of post-acquisition liquidity is essential for the successful management of an ownership transition, especially when the previous owners have been running the business for a substantial time period. Kaustubh spent the early days of the transition mapping out standard operating procedures, key operating expenses, and human capital needed to maintain the current book of business. He was then able to calculate the amount of working capital he needed and approach negotiations over that point from a place of honesty and collaboration. Kaustubh made sure to start this conversation early in the diligence process, which allowed him to avoid surprises in his negotiations and set his company up for success in the first months of post-acquisition operations.
From a management perspective, the first 100 days after taking over the business was a period full of intense learning for Kaustubh. After nine months, he highlighted the following advice for aspiring SMB owners:
- Take it slowly and be prepared to change assumptions
Everything took significantly longer than expected. Kaustubh had some concerns about the team, especially how they would accept the new leadership, and almost no worries about the logistics part such as software or even procedures transfer. What ended up happening was the exact opposite. In his own words, the “smoothest part was the crew”, while the logistics “turned out to be like a humongous headache”.
- Be well prepared for the team intro meeting
Kaustubh paid a lot of attention to the “people side” of the transition. For the ownership transition announcement, he carefully organized an intro meeting with the whole team at a nearby pizza place, which went relatively-smoothly. He focused on sharing a positive vision for the business and a deep respect for its success up until that point, which was received positively. He highlighted how important it was for him to learn the ins and outs of being an arborist, but also talked about the future opportunities for everyone, once the business starts growing.
- Keeping key people around
As a new owner, Kaustubh was responsible for making sure the business would continue running smoothly after the transition. For him, this meant retention of senior team members, particularly given his inexperience in the industry.Before signing the final contract, Kaustubh made it a condition to meet key leaders, who assured him they would stay. This is another example of how preparation during negotiations leads to a smoother transition post-acquisition.
- Don’t rush new hirings, look inside the organization
The main challenge Kaustubh encountered was with sales. His advice to the community would be to slow down on hiring, because it’s better to hire later and hire well than onboard a bad hire and hurt morale. In his case, he had more success training people internally than hiring externally, which enhanced the cross-functional capacity of the entire organization.
- Earn team’s trust, but don’t forget your main role
Kaustubh received advice from a mentor to spend 20% of his time in the field in order to learn the business and build camaraderie. However, he found that this was exceptionally challenging given the number of business-related decisions and transitions that needed to be managed. The first 100 days are a battle of priorities – working on the structure of the business can conflict with learning a new industry. Kaustubh found that the creation of an advisory board approx. 3 months after taking over Blooma was especially helpful when it came to getting help on the business side of things. Kaustubh’s advisory board consisted of more experienced business owners, investors, and trusted confidants. They support him on bigger-picture tasks such as constructing a development strategy. This has allowed him to shadow employees on jobs and get professional certificates in the field of arbology. Kaustubh always makes it very clear to the team that his priority is not climbing trees, but growing the business so that everyone can benefit from better opportunities and conditions. He put it to them in a memorable way: “If you see me climbing trees, you should probably find a job.”
To conclude, the reason we focus on the first 100 days after an acquisition is because buying a business is about more than financial projections and cash flow management. In Kaustubh’s case, taking over the business was a challenge despite his significant skills as an investor and financial analyst. The ex-owner was very successful and had big shoes to fill. Kaustubh found that striking the right balance between learning the ropes and leading the business forward made his first 100 days a success.
This episode of Private Market Insights was packed with great advice and offers a unique perspective on the first 100 days after taking over a SMB. Success is obtainable through careful planning, something our guest talked about a lot, and also through empathy, optimism, hard work and, last but not least, humility. We highly recommend you listen to the entire story, as this article does not (and cannot) catch all the nuances of such an amazing case study.
Good luck, Kaustubh! And special thanks to the community for the great live questions.