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Jason Ehrlich_Spreading Wealth Through Acquisition Entrepreneurship

Spreading Wealth Through Acquisition Entrepreneurship with Jason Ehrlich of Fruition Capital

January 17, 2024

Entrepreneurs are continually seeking new opportunities to expand their wealth. One standout strategy is to diversify investments, a powerful approach that minimizes risk and maximizes opportunities for growth. Jason Ehrlich of Fruition Capital sits down with A.J. to explore how you can create wealth through acquisition entrepreneurship and real estate but also demonstrate the key advantages of investment diversification.

About Jason Ehrlich:

Jason Ehrlich is an entrepreneur and passionate investor based in Atlanta who’s also a pro at juggling family, business, and adventure. He spends his days managing two investment firms that he founded—one in the commercial multifamily space, the other in small business acquisitions

Jason and his wife, Kelly, were digital nomads for two years, traveling all over the world way before remote work became cool. When he’s not running his investment firms or spending quality time with Kelly and their two boys, you’ll find him on a learning journey, always open to the world of new opportunities. With his unique insights and experiences on the connection between entrepreneurship and investment diversification, Jason helps other entrepreneurs level up their financial game to eight figures and beyond.

Why it’s important to diversify investments

Diversifying investments is about spreading your entrepreneurial risk across different types of investments to create a balanced portfolio. Ask any successful investor, and they’ll share how diversification acts as a safety net. It accommodates the natural ebb and flow of the financial tides and ensures one bad wave doesn’t sink your ship.

Here are the top three reasons why it’s vital to diversify investments:

  1. Risk mitigation: Investing in different types of assets, like stocks, real estate, or acquisitions, can help protect your wealth. It’s like not putting all your eggs in one basket. If one investment doesn’t do well, it’s okay because your other investments can help balance things out and protect you from losing a lot of money.
  2. Capitalize on opportunities: Diversifying your investments suggests not placing all your assets in a single market or sector but rather in numerous areas of potential growth. This increases your chances of benefiting from emerging opportunities, given that various sectors often perform differently under changing economic circumstances.
  3. Achieve long-term financial goals: Diversifying investments is like taking various paths toward your financial goals This strategy helps you maintain steady progress over time, even if market conditions change. If one path (or investment) gets rocky, the others can keep you moving towards your target. So, a well-spread investment approach makes the journey to grow your money smoother.

Spreading your money across different investments is key for business owners who want steady growth and to keep their money safe. It’s about finding the right balance between taking chances and playing it safe. With this approach, you’ll have a better shot at long-term financial success and more ways to grow your wealth.

Key Insights:

  • Find investors who will actively participate in your journey. When working with investors, remember it’s not just about the capital they provide. They offer much more, from providing valuable insights and experience to extending your network. They can help you build a stronger foundation and build a roadmap that works for your unique goals. (08:29)
  • Embrace incremental growth. Aim for steady progress rather than overnight success. This way, you can build long-term value and gradually move towards your goals. This approach ensures sustainable growth, lays a solid foundation for your business, and even attracts investors who can provide strategic guidance and share valuable industry insights. (12:32)
  • Focus on one thing at a time. As Jason puts it in this episode, growth comes from a dedicated and singular focus. When you focus on everything all at once, you can spread your resources too thin and get mediocre results. Prioritize and direct your energy and resources toward a specific aspect of the business to improve your decision-making processes and create more intentional growth. (17:29)
  • Get a clear picture of the operations before you acquire a business.  When considering an acquisition, it’s crucial to thoroughly understand the operational aspects of the target company. Research, analyze, and assess the company’s systems, strategies, and compatibility with your own business to ensure a successful integration. (33:52)
  • Bring on an investor to improve your chances of success. Engaging with the right investor can bring additional value to your business. The expertise, mentorship, and network they provide can enhance your chances of success, thereby making the investment a mutually beneficial partnership. With their support, your ability to diversify investments also improves. (39:06)

Jason’s best advice for entrepreneurs:

“Growth comes from dedication, focus on a particular area of expertise. So that’s where our fund kind of comes in and adds some value: we are investing with folks that have that singular laser focus on the thing that we’re doing.” (17:29)

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Resources Mentioned:

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Transcript

Jason Ehrlich:
Yeah, thanks for having me, A.J. I’m excited to be here.

A.J. Lawrence:
This is going to be really interesting because we were just chatting before the show. As an acquisition entrepreneur, looking at how to fill out your own investment and how to kind of target different companies and utilize your own capital versus bringing on investors, it is really a strong opportunity to find the right partners to help you go on. But before we kind of geek out a little bit about here, you have such a great thing because this, your commercial real estate are more of, I don’t want to call them side projects because they’re definitely not. Can you kind of talk about how you got into this and what you’re doing now and just where you are in your own entrepreneurial efforts?

Jason Ehrlich:
Yeah, sure. I’m happy to give a little bit of the backstory. So I’ve always had sort of an entrepreneurial bent, but I came up in the world of the W2 employee and what has always taught all my life and education, everything. Just become a good employee, and that was the whole thing. So that’s the path that I followed for most of my life. I wish I’d kind of gotten bit by the bug sooner. But I happened in entrepreneurship almost by accident. Back in maybe 2013. I was looking for ways to diversify my own investments outside of publicly traded stocks and bonds and index funds and things like that.

Jason Ehrlich:
And naturally, as one does, came to real estate as a good asset class to diversify into. But instead of just going and buying rental homes, I did some research, got interested in the commercial side of the real estate market and started investing just as a passive investor in some of these apartment complex syndications. And I did this for years and then learned from these sponsors and watched from the inside of their operations and had a light bulb go off to say, this is a fascinating business and what do these guys have? Or what do they know that I don’t have or that I don’t know? And the answer was, really nothing. And so I set aside a block of my time and interest to stand up a business, to raise capital, to buy and operate these apartment buildings, and have been doing that since I think 2015 or 16 with pretty good success. And because of my own risk tolerance and liking to get all the way to second base before I take my foot off first, I’ve been able to keep a day job while simultaneously sort of pursuing my entrepreneurial ventures on the side.

Now, while that’s been going in the intervening years since 15 or 16, I continued sort of spreading out my own chips personally into different asset types and as sort of a natural evolution, found my way to investing in operating businesses too. And maybe a little over a year and a half ago, I got introduced to the ETA, or the entrepreneurship through acquisition community as it exists in its current incarnation. And I was just completely taken with this whole micro community of entrepreneurs that are out there actively acquiring small businesses to run and operate instead of trying to found something themselves or instead of going and just being an employee.

They wanted the entrepreneurial dream, but they wanted it with perhaps a lower risk profile that comes with starting your own business. And so the more I learned about the space, the more passionate I became and I sort of again had that light bulb go off to say, well, there’s a real opportunity here to work with these sort of folks. And what have I been doing on the commercial real estate side for the last however many years it’s been, I’ve been a private investment sponsor with individual asset vehicles and fund vehicles, and I’ve got a big base of investors. I could pick this same model up and move it to operating businesses as an asset class. And so that’s what I did. I stood up fruition capital as sort of our second investment entity, and we now partner with acquisition entrepreneurs or even normal entrepreneurs who have decided they’re going to pursue acquisition that perhaps is a way to grow or level up their own businesses. We invest with them as sort of a value adding partner, and we have a fund, soon will be a family of funds, that work with these individuals to support their entrepreneurial either acquisition or growth.

A.J. Lawrence:
Yeah. Let me know if I can actually talk about some of the details. You’ve shared the investment deck with me. Is it okay if I kind of just reference some things?

Jason Ehrlich:
Yeah, of course.

A.J. Lawrence:
Because what I wanted to do was, one, I wanted to take this a little two sided. I wanted to first talk about sort of you as a partner for entrepreneurs. Since myself and the audience, we are predominantly entrepreneurs, our focus is really how can we grow our own journeys as entrepreneurs through the vehicles of our business, what we’re doing and how we can. But also as entrepreneurs, as we grow and with success, have the ability to invest into different types of things. First, I was looking at like, oh, yeah, I’m about to go hopefully, as I keep sitting here knocking on wood, hopefully acquire a company and look at bringing on investors as part of the process of doing so.

So I was looking at it through that prism. But then also as someone who has invested an LP in different angel funds, some private equity, some real estate, I was also looking at your fund as an investment and looking at that, and I was really kind of impressed. I think the two sides they like was having penciled out those numbers for both sides, both from what does it look like as an acquirer and what is sort of the ongoing expectation of investor return in here? What I liked was you seem to have kind of split that number. You’re not greedy. You have a good, what I almost want to say is a straightforward return on both sides. And that was what I was kind of really impressed at looking. When you’re talking to potential acquisition entrepreneurs, what is sort of the position that you first take with the value prop that you’re offering?

Jason Ehrlich:
Yeah. So the value prop that we bring to acquisition entrepreneurs is a couple fold. First of all, in the segment that we’re talking about, we focus on businesses, let’s just roughly doing one to 2 million in earnings. Happy to talk about that in a bit. But we tend to be one of the larger check writers in this space. It’s generally a very organic sort of friends, family, and fools, as the expression goes, capital raise, where people are bringing in 25, 50, 100k checks and a whole bunch of them and trying to scrape together capital we need. We come in with six to 800k and are oftentimes half of their equity raise.

And with that, it a, takes a lot of stress off their raise, b, it’s a lot easier to go finish the raise when you can point to a firm like ours and say, we have an anchor investor on board. They’ve already been through the operating agreement and have redlined the terms and everything is set. Basically, you just have to sign up to this deal that this anchor investor is already supporting. So it massively de-stresses the capital raise. But we try to go a lot further than that because I have my own background. Before business school, I was in management consulting for a number of years. I’ve also got a general partner team over here that I’ve assembled of folks who are successful entrepreneurs. So we will typically take a board seat with these entrepreneurs that we support so that we can sort of stay in the loop and provide, to a varying degree based on what the entrepreneur wants and needs, advisory and ongoing guidance and support for them through their growth journey.

So we don’t like to be an investor that just writes the check and walks away. And I think that’s significantly valuable for a lot of these entrepreneurs, some of whom, this is their first time running a business. Not all, but having that sort of experienced eyes and ears to stay involved and, pun intended, invested in them, they find that pretty valuable. It’s good for them. It’s also good for our investors. Right? Because I think it would be irresponsible of us to sort of set it and forget it and just put capital to work and then hope that it all goes well. While we’re not controlling these businesses, we’re not operating them day to day, we owe it to our investors to make sure that we’re steering the ship and performing at or above the levels we’ve said. So it’s sort of the right thing to do on both sides of the coin. So that’s the model.

A.J. Lawrence:
Yeah. As someone who is on a board of a couple of companies versus investments I make where I never, and it’s really funny because I think the world, especially when you look angel investing, I have people who give me monthly updates and then I have people who I’ve never heard from since I’ve made the thing. I think a lot of people have long ago made the correlation. And it’s like, okay, if you’re getting regular updates or if you’re on a board and you’re seeing things generally, outcomes are much better. Though I was recently surprised, something I hadn’t heard in four years just sent me a check. So I was like, oh, okay, I had written you off, but yay, good to know. But generally if you don’t hear, it’s not. So being able to sit there and see things ahead of time, yes. Board can be particularly limited, but you at least could one see what’s coming, but then two offer to at least help guide some of the direction response.

Jason Ehrlich:
Exactly.

A.J. Lawrence:
I’m seeing in a lot of my conversations with the people I’m working with just in advising for their own business growth and sort of trying to figure out the marketing strategies so you can be in that position to help, that was one of the things we were chatting before. When you go out and I’m thinking back to your deck as you described how you kind of come out to find these opportunities for the fund and your investors, how do you discuss with entrepreneurs the value of looking at this type of acquisition now? It’s something I totally believe in, but I always do like, how do you bring that into the conversation?

Jason Ehrlich:
Yeah, I mean, to be honest, it’s sort of a self-selection thing there. What we put ourselves out there in the market as is we work with entrepreneurs who are acquiring businesses, whether for the first time or to add on to their existing business. So that’s not a conversation I have to have too often because folks that I engage with have more or less decided that they’re going to buy a business or they’ve bought a business and they’re going to add on to it. So it’s much more a dialogue about do we believe that the entrepreneur has all of the requisite skills and experience to succeed? Is the business that they’re pursuing or that they have and are expanding in alignment with our investment thesis? And that’s where we spend a lot of the time because we are fairly particular as a bit of an aside here, but I think relevant these different types of investing vehicles that you mentioned, startup or vc or angel, they all have very different risk reward profiles. And where we sit in that kind of food chain, we like businesses that have had stable performance for years and years and years, ten year plus track record, and we’re looking for revenue and EBITDA. That’s pretty stable. We’re not looking for that rocket ship growth trajectory. We’re definitely not looking for the down in the dirt kind of turnaround story.

It’s very stable and predictable and we come in and we help sort of realize opportunities for growth, but it’s incremental, steady, sustainable growth. That’s what we’re after and that’s very different. A lot of businesses aren’t on that trajectory. They’re growing like a weed or they’re failing or they’re stuck somewhere. So we have a lot of conversation with folks delving through the dynamics of the business that we’re talking about to say, is this an air quotes enduringly profitable business? If it appears that way, why do we believe that? What are the sustainable competitive dynamics or moats or whatever you want to say that have let this business be profitable in the past and that, as best as we can tell, appear that it will sustain that profitability going forward? So that’s where a lot of the conversation centers around.

A.J. Lawrence:
Okay. And then in looking at this, you have this very specific type of company coming in. Do you work ongoing to help them acquire more companies to expand that way? Because then, especially since you are at the top range of where the SBA, plus a little SBA support, because people like Live Oak and a few others will do, kind of forgetting the term.

Jason Ehrlich:
Pari-Passu loans, larger loan amounts on top of that, 5 million.

A.J. Lawrence:
Yeah. Thank you for bringing in the specific term. You are getting there. So then the entrepreneur coming in, it’s now moving towards that conventional or cash flow driven type of thing. Do you also continue in that phase as the business continues to acquire, as it grows?

Jason Ehrlich:
Yeah, very much so. I would say that there’s sort of like three ways that our fund plays. We play in the I’m acquiring a single business that’s, let’s say closer to 2 million in earnings, and we just think there’s strong organic growth potential. So we’re just going to buy this business. We need the capital up front, and then we’re going to grow it organically. That’s sort of our bread and butter. That’s play number one. But we have done plays two and three as well.

Play number two is I see this fragmented industry, and I’m going to intentionally get into this with the idea that I’m going to acquire a multiple of these businesses. They’re relatively small shops. I’m going to put 5610, 15 of them together to build a business that has the sort of scale that I want to see. And so call that the roll up. So we invest in those as well, and then play number three is similar to the roll up, but different, which is I bought a company or I have a company, it’s my platform company. I wasn’t going in intending to roll up and continue acquiring the same company, but I’ve identified an opportunity or a need, and I want to bolt on a business, acquire a business to add to my platform. It’s not just the same business, but it gets me into a new geographic market that I need. It has a new product line that I need.

It gives me access to a customer base that would be accretive. There’s some other reason. And so we have invested in sort of all three of those different types of business acquisition.

A.J. Lawrence:
All right, very cool. So you’re focusing on the entrepreneur, though, who is either directly or sort of within that same business. Not this, because there is this movement towards the baby Berkshires, the whole co. My God, some of this going on. It’s like there’s a very few people that are doing it, yet. It seems to be 90% of the noise right now around the whole co, which is really good, because I do agree, as cool as the whole co is, the vast majority of value comes from strategic focus. I know from my own business growth in the past, it’s like the more we reinvested into the core, the faster we’re able to grow versus diversifying.

Jason Ehrlich:
That’s exactly right. And honestly, that’s a big part of our fund thesis, because there are elements of baby Berkshire that are extremely attractive, like the diversification that comes with being able to get multiple industries, multiple geographies. There’s huge value to that, especially when we’re talking about small businesses. These aren’t blue chip companies. While they’re more stable than startups, they fail. There are issues. So the diversification is valuable. But your point is spot on, right.

Growth comes from dedication and focus on a particular area of expertise. So that’s where our fund kind of comes in and adds some value, is we are investing with folks that have that singular laser focus on the thing that we’re doing. We’re not going to invest in a holdco, but by the nature of being a fund, we’re going to have about eight positions in the fund. And so we are able to sort of achieve the holdco diversification without becoming a holdco, and still sort of being able to rely on and take advantage of that focus dynamic, because each of our individual portfolio entrepreneurs are doing exactly that without any regard to the other positions in the fund.

A.J. Lawrence:
Yeah, and there’s this great. And because you are very focused in this type of b to b, the age, the size, it was reminding me a lot. And all I’m remembering is the term farmer. But there’s a risk profile farmer, that even if you’re looking, even if you have two same style businesses, same revenue profile, same thing, but if they’re diversified by location, as long as you have some basic diversification between the two businesses. If you’re invested in both, basically you’re diversifying a vast majority of the risk just because of revenue flows and profit flows, just from a very simple difference in that risk profile. So I think as an entrepreneur, one way of looking at this is you can get a lot of the benefit, maybe not some of the upside, but definitely reducing some of the low side by using some of your profits to invest into something like this. Maybe a few other things, but this is a good way of focusing on your main platform and just diversifying around the edges a bit by looking at some other entrepreneurs, too.

Jason Ehrlich:
It’s funny that you bring that up, because that’s kind of been a pleasant surprise for me in running this fund. My thesis for where the fund’s capital would come from is, hey, I’ve been running a commercial real estate investment business for six, seven years. Let me bring this new asset class of small businesses to my real estate investors. And that’s definitely where it started. But as we’ve sort of gained momentum and the performance is starting to look good and we’ve had more visibility, I’ve had more and more successful entrepreneurs who are either a, still operating their own business, or b, have exited and are looking to redeploy capital in a space they understand and are passionate about, have been coming into the fund, which is to me, a great vote of confidence. My going in expectation was, hey, these folks already have access to this asset class. They don’t need what we’re doing. But what we’ve been hearing is that the ability to write a single check and get access to eight deals instead of centering your risk in one like you talk about, right.

We get that diversification benefit, and obviously we’re doing a lot of the legwork, and we vet a lot of entrepreneurs and a lot, a lot of businesses. We’ve got our own diligence and screening, so I think they found some value in that. All that to say, I’ve been pleasantly surprised. And it makes sense to me now that it’s happening that entrepreneurs are using our vehicle as a way to get more diversified access to a space that they already have.

A.J. Lawrence:
And what I found interesting, and just referencing back where you’re putting sort of the return structure, you’re targeting a 24% internal rate of return for your investors. As someone who’s both built out, like where I’m going to be targeting my investors in that 30% to 35% when I was looking for capital before. We found some holes in my last. Go into there and be like, wait, where’s this 600k that’s listed Instinct?

Jason Ehrlich:
You mean brokers don’t always have perfectly accurate information?

A.J. Lawrence:
Yeah, this is from the enterprise. Then the seller is like, oh, well, it’s sort of, oh, it’s a cure. It’s like, but you said all of your books were cash. But let’s not get into there because I will. But in looking at that, that is a really interesting thing because it’s like when I look at thinking about it, I’ve looked and said, okay, I’m trying to target this. I’ve seen some investors try and get much higher, but generally in talking with a lot of entrepreneurs or putting it together, we’re targeting this 30 to 35 different, and it comes into sort of some other, when it comes out, then it’s like, okay, how do you pay back and what’s the acceleration and all that fun stuff, but generally there. When I look at though as an investor, what I’ve seen a lot is sometimes the things that come to you are the least ones you want to be doing. It is that when someone reaches out to you, you’re like, I hate to say this, but that’s almost a bad mark and I do have some better relations now, having been in the space of it, where some things do come.

But it’s like, as I said, I’ve invested in some angel funds where the money has just disappeared. So I’d rather have a slightly lower return with lower risk. In a sense, I think this is where it’s an interesting, where you have come in still giving an outside return to market to the investors, but you’re reducing their risk as an entrepreneur because it’s like, okay, I can look at 1015 deals a year on my own. Obviously I could do more if I specialize, but just as an ad hoc, that’s not a really diversified risk profile to look at where you’re looking at hundreds of deals to make your handful of choices.

Jason Ehrlich:
Yeah, well, so there’s two things to unpack in there. Number one is, yes, absolutely. It takes a lot of time and work and networking and consistency and being visible in all the places and spaces that these sort of entrepreneurs go to build the sort of deal flow where you can talk to 300 folks and invest in eight of them. Right. So there is definitely value in being able to see that many at bats to know what the best deals look like on the return profile. I’ll say this, I appreciate your point that it’s above market for individual investors, below what they might get an individual deal. What I’ll say is this, I style myself a pretty conservative underwriter, probably as a function of my time in real estate. But when I’m working with the entrepreneurs, we are underwriting the funds investment in that deal to a 30 to 35 like you’re talking about.

So we are investing on what I’ll call market terms, despite us being the anchor investor in these deals. We’re not trying to muscle entrepreneurs around. We’re not trying to force above market terms on them just because we’re 800 pound gorilla. Like, we view these as partnerships. There’s sort of a fair market standard. That’s where we’re at. What I do then is I sort of layer on my own conservatism at the fund level. And I’m saying, let’s assume that not all of our positions play out exactly the way that we want them to play out.

And I still want to be able to deliver my projected returns to investors. So when we put forth a 24% IRR, that’s my strong confidence return. Yeah, I like to try to under promise, over deliver, and that’s what we hope to do with that. So we’re still very much underwriting deals to the 30, 35 like you’re talking about. And hopefully all those will perform overperform and flow through. But we want to be conservative with what we put forward.

A.J. Lawrence:
No, and I do appreciate that. And I should have mentioned, yeah, you’re not saying it’s limited to that. You’re not capping it. You’re targeting with that plus the market. The good thing is, yes, we are in a little bit of an economic. I was about to say woozy woo, but I was like, that doesn’t make any sense. But we are in an issue where still, historically, this is an outperforming asset class, even as it has remained a smaller asset class that I think has helped returns. It will be interesting to see the next five years as more people get in.

And now let’s kind of your target range of EBITDA, because I do think there’s more people coming in. There is not stupid money, but there is more aggressive money on the edges, both on the lower side. And what I am seeing, and this would be curious, having had a few exits in the mid seven figures, I’ve been targeting the upper range of the SBA, which is that they’ll do up to five. So I’ve been targeting companies that are in that five to about eight range. So EBITDA around, give or take a couple of swings at the higher times. But what I found almost consistently now is where people were saying two years ago, they never really saw private equity coming in under two unless it was a very strategic, something they’re seeing now regularly down into the million. They’re having smaller PE firms come in into conversations and strategic buyers. Since I look a lot marketing services.

So either agencies or tech focused mark tech things, they’re coming in where they wouldn’t look at this size space they’re coming down. And I just had something where literally eight hundred k target and there was a micro p and there was a CG requirer. And I only found out afterwards, but it was like, wow, I was used as a staking horse. How are you seeing it with these entrepreneurs? Because this space is now getting more competitive. I know you know the question, but what are you seeing?

Jason Ehrlich:
Yeah, you’ve outlined it. I think it’s a flavor of that. We have definitely seen lower middle market private equity firms come down in the range of the size of businesses that they’re willing to look at. I think strategic haven’t changed a lot. There have always been strategics out there. And when you find a business, even if it’s smaller, if it has strategic value, they’ll play. I don’t see them in most of our transactions. They’re a little bit of the oddity, but they’re out there.

PE is definitely more of the moving market like you’ve talked about. I still don’t see them much in one to 2 million. You do see more of them. I think your trend identification is accurate. What I’ll say is in that two to 3 million, and especially north, they’ve gotten very active. And there are firms now that rather than do an OD deal down there, that’s sort of a bread and butter segment for them now. And I actually view that as a net positive for the entrepreneurs that we work with and our funds thesis, because still in the one to 2 million, I will say most of the deals that we invest in have a three and a half to four and a half multiple. So the multiples are still, in my view, very attractive.

If we see a five multiple, there better be a really good reason that that business is just a killer business, because the market multiples are still fairly low. But what we see is if you buy a business doing one and a half to 2 million EBItdA, growing it into that 2 million range doesn’t take jumping over the mountain, you know what I mean? Like five years of strong organic growth or perhaps a bolt on. And all of a sudden you’re in that space where these lower middle market PE firms are very interested. And that can work wonders for an exit multiple because they’ll pay several hundred basis points higher than your entry multiple. So we actually like that trend a lot from an exit multiple perspective. And I’ll just add one more thing onto this too. And we’re sort of focused on the demand side. The supply side is moving a lot too.

And that’s a central sort of tenet of our funds thesis is 55% of these businesses that we’re talking about are boomer owned, and those folks are rapidly aging out and retiring. So I think we’re probably only in like the second or third inning of that wave. So the volume of businesses that we’re talking about and focused on coming into the market is growing by the day. And so I think that, yes, you have more interest for sure, but I think you probably have even more supply coming in than you have new demand. So I still see the market dynamics as very favorable and I like the exit sort of possibilities with PE coming down. Yeah.

A.J. Lawrence:
And I think one thing that maybe dispelled what I realized is because of the focus of the type of b, two b, looking at ones that are very location focused, they are servicing a location based like the one you have in your deck is just to the south. Well, not just the south. A couple of hours, I’m becoming american again. It’s like, oh yeah, a few hour drives, that’s next door. But it’s that idea that it is about the location versus the clientele being serviced from elsewhere. Yes, the entrepreneur can probably provide more back office global talent, do all the same, reduce cost structure by bringing in a lot of remote capability. But you still are having to be in that location. That probably reduces a lot of the competition you have to face. Doesn’t move it.

Jason Ehrlich:
I think that’s right. And I would say that’s not a hard and fast rule for us. I could think of out of the fund has made five investments so far this year. One of them is a business that has clients nationally, it’s a manufacturing business, and they send their finished product all over the country. But all of the others do indeed have a geographic focus. And as we talk about sort of that enduringly profitable profile, a lot of times having that geographic moat where you have to be in proximity to your clients, it’s a competitive barrier and it’s hard to overcome. And that leads to that enduring profitability and is also sort of like you say, a reason that a lot of these more scaled players that want a business because they can just scale nationally doesn’t really do that very efficiently. And so it does sort of keep them out of our segment a little bit.

A.J. Lawrence:
For them to play into that space, they need operators. And this has become a hot discussion also in the acquisition space, finding operators, training operators. Your focus is very much sort of on the CEO coming in or, sorry, the acquirer coming in and being that CEO. And what I really liked was the reference, and I’m just going to keep saying into this, he was getting his specific license for being able to drive the type of trucks for the acquisition. He was moving there. It was very much like, all right, they’re in there. And a hands on operate. As someone who does focus more on hands on versus never passive, but more of that kind of acquisition.

Do you also though, look at where the management team beyond the acquirer is going to be? I didn’t see much discussion on that. What sort of do you look in that phase? Like do you help grow that? Do you make sure that the acquisition has a management team beyond whatever this role is from the acquirer? How do you look at that?

Jason Ehrlich:
Very good point and very relevant for us. We want to make sure that the entrepreneurs we’re supporting a fit. The profile you’re talking about, they are coming in and taking control of the business hands on. To your point about the focus and the energy driving the growth, we want that person. We’re not looking for the hands off hold co portfolio owner. But with that said, we want to make sure that the entrepreneurs we’re backing aren’t buying themselves a job, that they’re buying themselves a scaled business. And so definitely one of our sort of key acquisition criteria, we want to look@the.org chart and we want to look at the division of labor and the roles, responsibilities and make sure that there is no sort of overly burdensome key man risk where the existing owner, the seller who’s exiting, has been doing all of these key things and there’s a big question mark about who will do it when the new acquirer comes in. So we want to see an.org chart sort of already in place.

The asterisk to that would be in play number three that we talked about, which is you’ve already got a platform and you’re bolting on an acquisition that might have an asterisk on it, but in general, a little less. We want to see management infrastructure there so that we know the entrepreneur is going to be able to focus on the right sort of strategic level, major client accounts, growth product, all those things, rather than having to sort of grind the sausage of the Everyday, making sure the business is running. With that said, yes, do we help them build that out? Definitely. I mean, almost no one is coming into these businesses saying, well, it’s been running great, which it has been, because that’s our profile. I’m just going to leave it alone. Everybody has plans for streamlining operations, growing into new market segments, whatever it be. They’re buying this business because they see an opportunity. And we definitely, I talk about the advisory and things that we provide.

We’ll talk to them about their growth plans or their optimization plans, the opportunity they see, and what supporting personnel, resources, organization assets would look like to get after that. So those are conversations that we definitely have. Yeah.

A.J. Lawrence:
And just quick aside on that, because this is, I think, something that’s becoming fascinating. I’ve been having a lot of discussions of pros and cons, of looking at bringing in like EOS, scaling up OKR structures. And I heard one person kind of say, well, every time I do this, we just look to do EOS because it’s becoming like word perfect or not. WordPress. Sorry, God, I just dated myself big time. WordPress, because it may not be the best, but it is the most prevalent and with the most common. With the most likelihood of someone you bring into an organization understanding or least knowing or finding support material, it’s kind of having that thing. Do you look to suggest that with entrepreneurs, or is it just more of a case by case basis?

Jason Ehrlich:
No. So we have sort of a slate of resources that we like EOS. I am actually a big fan of EOS. And is it perfect? No. Is it becoming more and more popular? Yes. I think that’s for a reason. I think that for the vast majority of entrepreneurs, it can be a major value adding resource to their business. It organizes the chaos.

It helps get them out of the details. So to use the cliche, they can work on the business, not in the business. I’m definitely an EOS proponent because of our model. We support entrepreneurs. We are not driving them or controlling them. We’re here as a resource. So we’re never going to issue the edict that says thou shalt implement eos, but it’s something that we make sure that they’re aware of. We recommend, we’re there to speak the language with them if that’s something they’re going to go into, but at their own discretion.

A.J. Lawrence:
Okay, cool.

Jason Ehrlich:
Yeah.

A.J. Lawrence:
Now I’m kind of going into all sorts of like what’s the cadence you request? I am sorry, taking it out of the idea, but this is really fascinating, looking a little bit deeper, because as someone who has looked at it, I have thought about what would my own investor profile look like? Because one, it’s a smart thing in acquisition to just diversify a little bit of the risk and bring in outside investors, but specifically outside investors who are value add. There is this because having rub sticks together a lot and had my own shop completely, each of my own businesses. There is a point where I’ve realized the hard way, having only one voice in figuring things out, you can sometimes ignore that one voice which is like, oh, you should be doing the right things for the right reason was sort of my ongoing, whenever I work with people, it is that let’s focus on the right things for the right reasons and then spend the work in identifying what the right reasons and what the right things are. But it’s hard sometimes as an individual to not constantly be like, well, I have conflicting things. How do I keep to the mission? Having the investor who can not just hold you to the agreed upon strategic direction, but give you advice, resources, processes to do that, I think is a lot of what we look for from an investor as entrepreneurs that I’ve talked with and my own considerations. So I like that you’re doing that.

Jason Ehrlich:
Yeah. Well, I appreciate that. I am obviously biased in my position, but I can say unequivocally, even if I had every dollar I needed to buy my own business and I could retain 100% of the equity and be my own thing, I would still bring in outside investors, 1st, second and third, for the reasons you just talked about, right. Other people to put eyes on be thought partners who have aligned interest, vested in my success to either say the things that I was thinking but didn’t say out loud, or even extra set of eyes will point out things that you will miss almost every time. No one person is ever going to see every angle. So I would do it for all of those reasons. And yes, of course, being able to sort of keep less of your chips in that one basket and diversify your own risk a little bit, obviously tremendous benefit there, but that’s not even the reason to do it.

A.J. Lawrence:
All right, well, look, I really appreciate you coming on because you’ve been able to kind of walk me through a little bit, not so much behind the curtain, because it’s not like this area is completely hidden from view. But it is interesting in really having the perspective of the investor more hardcore into this because I have focused so much on the acquisition and then sort of the operations from the past. So it is kind of nice to look at that. And I know a lot of people I talk with from the audience, they are very similar in like, well, what is the way of understanding the value and sort of that thing. So I really do appreciate you coming on. I would love to kind of as you move forward, maybe reach back out, have you kind of, maybe we can kind of talk about some specific things in the future. I’ve been thinking maybe we as a show, an audience come and have a couple of people talk about different aspects a little more in detail. What’s the best way first for people in the audience to find out more information about you about fruitrition. Ugh, did massacre it. Fruition.

I’m just so stuck on fruit right today. Looking at it both from an investment point of view or if they are themselves are fitting your profile to talk to you about an investment.

Jason Ehrlich:
Yeah, well, first, thanks for having me on. I appreciate the opportunity. I’ve enjoyed the conversation and would definitely be happy to come back anytime. Yeah. For those who might be interested, Fruitioncap.com is our main website. If you’re an entrepreneur who might want to work with us on an acquisition or bolt on or whatever, you can find our sort of parameters and things. Fruitioncap.com and then if you are someone who might want to invest or look at investing in the fund as a way to diversify your access in this space, Fruitioncap.com investors sort of has that lens. Either category can just reach me directly at jason@fruitioncap.com sounds great.

A.J. Lawrence:
We’ll make sure we have all this in the show notes. We’ll put it in the newsletter when this episode comes out and you’ll be the first to know about Jason coming on the show and of course, always in our socials. Jason, thank you so much for coming to the show. I really appreciate it.

Jason Ehrlich:
Yeah, thanks for having me, A.J.

A.J. Lawrence:
Let’s first talk about investing because I am spending a lot of time looking at online investing and all these crazy investments are out there. But I know from my own past and from talking to a lot of you in the audience how to diversify our risk as an entrepreneur is a constant fear. We may not even be saying it as that way, but looking at this and creating a financial plan that you are focusing on your own entrepreneurial growth, but then looking at appropriate diversifications I think is really positive. So obviously build your own plan, but then look at something like what Jason’s doing. Look at these opportunities because you have this extra bit of understanding compared to a general investor of the value of building and investing into a small business growth. So, look, I think it is a really powerful vehicle. The flip side is, as you’re growing your business, bolting on, I’ve said it a gazillion times. It’s like I ended up creating so much value without even realizing I was doing this in my last business, just because we were able to bring in new clients, new services, and cross sell and upsell across the board.

It just led to so much overall growth and created so much value for me when I sold that wouldn’t have been there. So, look, take that consideration and build into the strategic plan of what type of investors are you looking at? And if you are fitting this profile that Jason and his team are looking to help back, I think you would have a very good conversation, and it would be a pretty good deal to look at them. So look, enough of me on my soapbox. Thank you so much for listening today. Really appreciate this.

If you know someone who you think would gain some insight from listening to this, please share it with them. This way I can get other cool entrepreneurs like Jason to come on, and we’ll go on and talk about things that are important to us as entrepreneurs. And when you share it with them, tell them to subscribe. I can speak English today. Subscribe on their podcast listening platform of choice when they do that.

All right, everyone, have a wonderful day, and I’ll talk to you soon. Bye-bye.

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