I've heard the term legalized mafia when referring to insurance. When back in the old days, when it was the mob and all that stuff, they did go and say, hey, you have to pay for protection.
SPEAKER_01If there is a mafia in finance today, it's the card network. It's one of the oldest industries as well. So I mean it's like insurance is boring. They'll say that they want the job, but then really they don't want the lifestyle that goes with it.
SPEAKER_03If you don't have alignment going in, you're just gonna have friction the whole way.
SPEAKER_02If you just keep doing it incrementally, it works out. It's like going to the gym. If you go every day, you know, in a couple months, it's gonna be good, right? But it's not today or not tomorrow, not this week.
SPEAKER_03You just keep tuning it up and you just keep doing the right, just get a little bit better every day. And you look back after 10 or 20 years and you're just shocked how far you can take the business if you do it that way. But the core of you here is the bigger you are, the more people can invest in you. If you bought a business that was small and then you grew it, that'd be a super valuable asset. But if you're growing organically, sky's the limit.
SPEAKER_01What's one piece of advice that you give an insurance agency owner going into the future?
SPEAKER_03And as long as you're pointing in the right direction, you just keep. So the craziest thing for me professionally, you know, I negotiate deals with companies to invest in them or require them. We were recently doing that with one company out west. We gave terms that were super fair. They came back really hard, as companies do, and you ask yourself, okay, fine, maybe they're just being tough. You come back with terms that you thought you'd agreed on, and they say, Oh, that makes sense to us. Then they can make even tougher. And you just get to this place where this just looks like a I'm not a masochist, I'm not just gonna sit here and keep being pumped once we pull out the term sheet. But those things happen. My name is Brandon Wolf, I'm managing partner of Jordan Partners, and I'm an insurance dude.
SPEAKER_00Insurance dudes are authentic to escape. I are agents how by the way. And profitable agents failed. I am great. I am agent. We are agents. We are insurance. Boom!
SPEAKER_01You nailed it. Tried. So you're saying over a third of the acquisitions that you guys have made have been through for like insurance related, right?
SPEAKER_03Absolutely. So Jordan is a firm that invests the first institutional capital in growing bootstrap businesses. We don't use leverage, and we try to invest in industries that are slow to change. And property and casuality insurance services is absolutely one of them. I mean, when you think about what Warren Buffett liked about insurance 50, 60 years ago, a lot of it's still true today. And whether it's AI or not, we think it's gonna be true 20 years from now. So property and casuality is one of our favorite places to invest. Although we don't do balance sheet stuff like Buffett did. That's too risky for my blood.
SPEAKER_02I've heard the term legalized mafia when referring to insurance.
SPEAKER_03Well, it's the nicest mafia on the planet, you know.
SPEAKER_02It is interesting though, right? Because when when back in the old days, when it was the the mob and all that stuff, they did they did go and say, hey, we you have to pay for protection, right? I mean, it is interesting.
SPEAKER_03I would say it is. I would say insurance is more of a social good than mafia was, right? Supposedly the mafia like skimmed off 1% of GDP at the docks and stuff like that. Like I mean, so if there is a mafia in finance today, it's the card networks, like Visa MasterCard. That's like an interesting little cartel. But one one of the things that we love about um uh insurance is that at the end of the day, like it's a social good, you're required to have it. And you know, I mean, think about the folks in California. I know that's a big theme of y'all's podcast. Think about the folks in California who may or may not be able to insure some of the biggest purchases in their lives. I mean, that's that's something you got to figure out.
SPEAKER_02So insane.
SPEAKER_01Yeah, 100%. So if you're an insurance agent, you're like, why like why should I listen to this? Because A, you're gonna know the difference between captive and indie, especially when it comes to private equity. And then you're also gonna learn how you can set up your agency so you can sell it for more. So if you want to make more money, listen to this. How do you like that for a hook? Makes sense to me.
SPEAKER_02You know, I think oh, go ahead.
SPEAKER_01Well, one of the things that we were talking about right before we started is captive versus indie. Everybody says the grass is always greener on the other side for the insurance agent. Um but really, uh, you know, when it comes to private equity, there's only one path that you can take with that, right?
SPEAKER_03Most likely, because if you're captive, you're really dependent on that carrier. So if you're indie, you actually have control of your destiny. I mean, when you think about how an investor thinks about anything, whether it's a public stock going down, they usually have a mental checklist, maybe even a required checklist, just to make sure they're checking the boxes. And concentration risk is always one of those. Do you have one customer who's X percent? Do you have one supplier who's X percent? And if you're a captive, that is always gonna be the dilemma that you know you live in someone else's world, even though it could be lucrative.
SPEAKER_01Yeah. And I know with our captive, uh, the captive that we that we're with, that we're not allowed to say, just FYI. Um it's in the contract that you can't have any other owners. So it's gotta be that business owner. Um but as a business owner, we always think about like what we're and Craig and I talk about this all the time, what we're doing is investing. Well, whether it's investing time, we'll investing in our agency or anything like that. So a lot of the same principles I think uh apply to both, whether or not you are the business owner or you know, private equity as well.
SPEAKER_03Well, and I've never had the chance to invest in or look at a captive business for the reason. But if you own one captive business, could you buy multiple captive businesses? I feel like I heard one of the guests one here recently say that the fellow who's a basketball coach, he bought one, then he bought another. Is can you buy multiple captives if you're solely owned? Yep. That might actually be the opportunity, you know, because then all of a sudden it's like, hey, none of these people in Midtown Manhattan or elsewhere can do it, but I have the trust of Carrier X, and I can go out for a lower valuation by virtue of it being a more limited market of buyers, aggregate that. So something to be said for that strategy. I just can't pursue it, unfortunately. You guys get to do it.
SPEAKER_02The challenge, it's not necessarily a free market, right? To go and just buy them. Like if if if I want to sell one and Jason goes, I want to buy one. Well, you know, the the carrier itself holds the keys to that. So yeah, there's all these approvals and and uh it becomes a carrot or a stick.
SPEAKER_03Which again, it's funny. I mean, I'm a student business history. Some of the biggest businesses made no sense when they started and they wound up being something like truly special. So I could see someone running a playbook where they kind of figure out what their carrier is looking for and they just serve them up what they're delivering to their investors because many of these carriers are public companies, they're trying to hit a number, hit a target, whatever. You play into that, you might actually, you're right, it's not a free market, but then it winds up being an advantageous market for you if you pull it off. All that being said, this is exactly why I like the indie market. This is why I stick to all things like you know, private and indie in general.
SPEAKER_01Well, we have some friends too that have aggressively bought agencies, but they aggressively sell as well and they've positioned themselves the opportunity to be able to constantly purchase. So um it's a killer strategy. Uh but I would love to know from an outside uh perspective, especially from um, you know, uh private equity, is like what what do you guys look for in insurance agencies? Sure.
SPEAKER_03So I think every firm is looking for different things. I mean, maybe just taking a step back, here's a way I would think about private equity broadly, because private equity is a lot of different things. Um on the really small end, you've got venture capital. This is funding a business that may or may not have a viable business model, but it could wind up to be one of the biggest things ever. You've seen that in agencies a lot with insure techs. I think we all would probably agree a lot of those insure techs never really had business models. They take other people's rails or other things and they put a wrapper around it, but you never know. After venture might come something called growth equity. It might be a minority investment, it could be a majority investment, but this is a business that's still in growth mode. It may or may not be profitable, but it's probably at least like break-even. The other end of the spectrum is leveraged buyout, which is growth is slower, debt is being put on the business to make the acquisition. Uh, this could be a business that's 20 million of revenue or 2 billion, 20 billion of revenue, right? Um, so within agency, like venture, outside of insure tech, there's just not often a lot of reason for it. You should use friends and family capital to build your business. So growth and uh leverage buyouts are really where you find a lot of it. So candidly, I don't, I don't know if you guys appreciate this because you're in the trench of agencies, but brokerages are one of those things that are so hot with private equity investors that as our firm, we mostly stay away from it. Like we we admire the industry and we think we're eventually going to find a team that we back to go build a category killer. But on purely valuation, it's one of those industries that is like catnip for private equity folks, whether they're Midtown Manhattan, Chicago, or elsewhere. So why is that? Part of it is just because it's been a great asset class to invest in for decades. And unfortunately, many investors are momentum investors and they won't admit it. But the second piece, and this really gets to what's so great about the business, the revenue model is really premiums go up over time for all sorts of reasons. Commissions don't tend to go down much over time. So you have pretty good revenue growth, and you have a super capital light business model, and you have one that is really just kind of ripe for consolidation. I mean, that's what Gallagher's been doing for 50 plus years, and it's just incredible to see what they've built that way. So there's a lot more nuance that goes into it, but the really simple answer is great revenue quality. It's very likely to grow and compound, and it's capital light. And you always have the opportunity to aggregate businesses around it.
SPEAKER_01Yeah, I love that. It's one of the oldest industries as well. So I mean it's like a lot, I'm sure a lot of the businesses you see are newer. You know, those are the exciting ones and those are the fun ones, but insurance is boring. I was saying insurance is boring, but man, it's it's it stood the test of time.
SPEAKER_03Fine is a great way to lose money in investing if you're not careful. Yeah. I mean, like we we're always looking for things that are slow to change. And that's that's again one of the things that I think if you're in agencies day in and day out, you can underappreciate. Like people think AI is going to disrupt it. Not really. We can talk about why that is. The internet was going to disrupt it. Not really. Like at the end of the day, there's still so much trust that matters for an individual. And it gets more and more complex every year, you know. So if you have one of these business models where complexity is good for it, relationships are good for it, and technology is just an opportunity for efficiency. Like, give me 10 or 20 years from now, and I have a feeling this market's going to still be a great market to invest in. It's just what valuations can someone pay? But again, that's where as an investor, like I can really help a company, but the operators are the ones that are driving the company. So if you're an operator listening to this, the world's your oyster in this industry. That's the good news.
SPEAKER_02So you come in, if somebody approaches you and they have you know an agency model and it's and it's looks good and all that, what what are the things that you're looking for? Like, what do you look through if somebody's trying to take their agency and and tune it up right now so it looks good, what would they do?
SPEAKER_03Yeah, so two different answers. What I'm looking for and what somebody would do if they're tuning it up, you know what I mean? Because I because I I like to be part of the tuning up. I don't I don't like to be tuned up when they show up per se. But like yeah, what what what what I what I'm really excited about first and foremost are the people. Um I can't emphasize that enough. That you can have a great business model, but if you run it like a lifestyle business, that's totally fine. You just have to know what you're running it as. But if you're instead running it as a growth-oriented, we want to be a category killer, that's something that gets really exciting to me. So the next question is is this person realistic about their aspirations or are they just totally delusional? Because we've all met these people, especially in sure tech, who are like, I'm gonna build the biggest industry, I'm gonna build the next Gallagher. You can't build the next Gallagher. You had to be there 50 years ago, right? But you can still build a fantastic business nonetheless. So after that, what I would really ask myself is sort of what are the end markets? Because I think that's the thing that people probably underestimate. Like you can be in the best business lines, and it's a huge benefit to you. For me, I'm much more of a uh, and I know that this is very little B2B, but I'm very much like B2B and complexity driven. But if I'm in the retail markets, I'm still looking for complexity, I'm still looking for diversity. So, and this gets back to the captive versus um, you know, independent. You also want to have really good business mix, like not a lot of customer concentration, not a lot of supplier concentration, not a lot of product or otherwise concentration. And so you roll out all that together and you should see a business that has been compounding sustainably. There's there's no growth rate that you have to reverse engineer it to. Like you can always try to grow X or Y percent, but you might break the company or underinvest. So see nice compounding to the upside, see expense control. And then if you have that management team that wants to build a category killer, they then start to generate some cash and they ask themselves, what do I do with this? For some people, it's I'm gonna buy a boat. And for other people, it's I'm gonna build a bigger company. And if you fit in the latter category, that always gets us really excited.
SPEAKER_02Right. And yeah, that's what we talk about all the time. Because I think agents uh and it this happened to me in the early stages, right? You get a whole bunch, you get these big bonuses. I mean, that's that's the key. And I think what keeps it exciting for us is if you put together the formula to create some growth, well then now you have this cookie cutter thing that gets you that bonus, right? So instead of instead of being concerned about making that cash flow monthly, you can come pretty close to break-even, but then get paid for it on the back end, right? Every year. And um, a lot of agents, and including myself at one point, would go out, oh, I got 400k, now I can buy something, right? When instead, like and the cost of that is detrimental, right? Because you you have to pay 35% of it to Uncle Sam when you take it out. And now you have the the balance that you go buy depreciated assets with, right? Versus taking it, the whole 400k and pumping it into leads and and callers and all the things that make a agency work. Uh, you know, so I don't even know where I was going with that.
SPEAKER_03By the way, what you just described sounds like a private equity investor, too. Like, I just got a bonus. What am I gonna buy? You know, it's it's human nature. I mean, look, the human brain is not good at compounding, but that's that's what everyone does when they really amass generational wealth. They they look at a model that works, they execute it, they tune it up, which I realize I skipped in your question. Sorry, we can come back if you want. But like you just keep tuning it up and you just keep doing the right things, small things, right? Like just get a little bit better every day. And you look back after 10 or 20 years and you're just shocked how far you can take the business if you do it that way. If you don't buy that boat.
SPEAKER_02Yeah. It's that's that is amazing because there's there's points where where both Jason and I strategically leveled up and took big gambles and um, no, not gambles, but you know, educated uh decisions that seemed risky and scary, but but we did it, and then it paid off. And um it's so easy to just stop, right? To say, I don't know if I could do that. But but really, I mean, like to your point, if you just keep doing it incrementally, it works out, right? It it it's it's like going to the gym. If you go every day, you know, in a couple months, it's gonna be good, right? But it's not today or not tomorrow, not this week.
SPEAKER_03Uh so this is one of those places where investors actually try to add some value too. So uh when an investor invests, they almost always do some capital to grow the business, but some capital in what's called secondary, which is really just de-risking it for the management team. So when you think about this, and you just described what every entrepreneur feels, even if they're not in agencies, you've put your blood, sweat, and tears, probably your life's work, all your money into this thing. You want to take it to the next level. But if you take it to the next level and the rocket ship blows up on the launch pad, then you're left with absolutely nothing, right? And if you blow it up on the launch pad by yourself, you sort of feel like an idiot because everybody's pointing at you like, why'd you do that, you crazy person? Whereas instead, the whole kind of idea of having an investment partner is you take some liquidity, you now are not going to go broke based on this thing you built, and now you actually hit the escape velocity. So I mean, my my favorite thing about just like building a business for investments, period, is it's all human nature. What you guys are describing, I see it outside of agencies too, which is the fun part.
SPEAKER_01100%. Yeah, it's all the same, right? I mean just people. Yep. So when you go into a business and you tune it up, I mean, what are the what what's the playbook for that?
SPEAKER_03So the thing that's funny is private equity is just like there's too many private equity firms already, and they all come in talking about their playbook, you know. So the first thing they try to do is say, I don't have a prescriptive playbook. You can just see people like kind of well the the worst part too is playbooks often almost always mean like cost cutting and other stuff that people don't want. So I mean, there's three things we do broadly, and like the bullet points that go underneath them are enormous, but we want to find places where we can do tuck-in MA. That is where all owners, including the operators, can do better because you build a bigger business. And plus, tuck-in MA is usually at a smaller price than what the value at that business is. It's just smaller, there's a smaller market. It's a bit what we were talking about earlier. So uh help with tuck-in MA. Unleash our network of advisors on helping the team get better. This is like C-level people who've been at a wide range of software and service companies. They can help on anything from general management on down through finance and HR. And then lastly, we want every company to lean into automation. And I think an agency, that's a really big deal. And you know, automation going forward is a chance for you to improve your margins, in some cases, improve your revenues. But at a minimum, the way we see AI is not the only thing, right? Like AI is just a piece of automation. There's a lot of other types of automation out there. But AI and everything like it over the next five years should make every business more profitable as long as you're in a slow-to-change industry like agencies. So each company, you know, you'll look at the management team, you'll look at the contracts, you'll look at the customer mix, you'll definitely care a lot about the sales team. I mean, everything, as you guys know from agency, everything is sales. Like you can sell an okay product and do exceptionally well if you have a great engine for that. So we'll get really in the weeds, but there's kind of three high-level things or what we do universally across companies.
SPEAKER_01I love it. Yeah. And you can apply this, I mean, to an agency. I mean I love the way you said that so you so you go in and basically you take all of the people that know what they're doing and help the people in the companies that might that might not have that kind of training in the past and and and try to merge some systems, see what you can improve in that aspect. So you're so you're really just refining processes, refining sales systems, and then um, we're we're trying to find people that have a good thing going, and then you get a little bit better every day.
SPEAKER_03You know, that there's and this is something I would say to all listeners, there's a tendency for private equity people to act like the smartest people in the room, when of course, like they're not, you know. I mean, it's it's just they have different functions, we all do different things, but you know, if if someone comes have the most money in the room. Well, but they're acting on behalf of other people, you know, like schools and individuals and everything else. So they might have the biggest ego in the room. That that is the one thing that is theirs that they have the greatest of, you know. But but but but like in general, you know, when when someone comes in, there's this tendency to be like, I know more than you do. When in reality, like every time I work with a team, I know capital allocation better than they do. They know their customer better than I do. I have to listen about their customer, they have to listen to me about capital allocation. And if we can't have that conversation, it'll just wind up being like that craziest situation at the top of the call where you're just talking past each other and you're like, Well, this is silly.
SPEAKER_01So yeah. Yeah, it's so crazy. What what you described reminds me of that. I don't know if you've seen that Elon um hit his his requirements before automating, but he he talks about the five-step process. It's question every requirement, uh so challenging the assumptions that are already, you know, that that are already going on. It's delete unnecessary parts or processes, then simplifying and optimizing. That's where you throw in the automation and then accelerate cycle times.
SPEAKER_03Yeah, it makes total sense. I mean, like, why try to get better at something that's a waste of your time anyway? You know, just like just cut the thing out and just like, you know, move on. Well, it's been wild too. Like, even outside of agencies, I mean, look at what's happened in the past couple years where big tech firms have gotten more efficient. They actually have gotten more efficient. You sort of take a step back and you realize there are just a lot of people sitting around in these companies, you know. So, but you know, with the companies we're looking at, they're much smaller companies. So you wind up going in, and you know, it's the kind of businesses where the assets walk out the door every night, so to speak, right? So you all problems are sort of people problems, and you just kind of figure out like who's resistant to change, who maybe is a little bit too moody, who can be improved, who can be up leveled, and who probably is just going like a trip. Um, but candidly, what I've been really excited about is the companies we've worked with have kept their staff at 100% and grown it. So that's been great to see.
SPEAKER_01Oh, that's cool. Well, what do you do when people are resistant to change?
SPEAKER_03It's the same thing you guys would probably do, I hope, right? You just you figure it out as soon as you can, you have the tough conversation, you know? I mean, and the tough conversation isn't like you're out, the tough conversation is this is where we're going and why. Do you agree with that? And if you don't agree with that, is there a better path that we should be thinking about? And if the path they're thinking about is like, I kind of like the way things were or something like that, that there's your answer right there. I mean, it's not good for anybody to stick around too long when you know you have a growth mindset and you're you're you're really just trying to compound the business. There's a lot of people who just rather just sit in place, and that's never going to work for what you guys are building or what we're building.
SPEAKER_02Well, that's what the carriers have identified and are cutting that out. Yeah.
unknownYeah.
SPEAKER_03There's a lot of that going on at the carriers, I think.
SPEAKER_02Yeah. I mean, which is fine. I mean, we've always we've been in growth mode for a long time, so it doesn't affect us for the most part. Uh, but it, but it it is you hear a lot of rumbling, grumbling and rumbling about the folks that wanted to, you know. I I I try to empathize too with, you know, I've done it for 40 years now, and I this I had planned to, you know, have this be the case, but I think you have to be ready for trying. Change, right? Um, and along those lines, like what I think that's one of the the fears of private equity too, is they're gonna come in and change everything, right? And and take away that entrepreneurial mindset out of the company. Is that you know what's your firm's philosophy?
SPEAKER_03I think it's totally right. And I'll try to talk broader than my firm too, just could to be helpful to listeners. I I would say this like every private equity firm is different. You should spend time vetting them the same way you'd vet a partner because they absolutely are a partner. They're gonna be one of the most important partners. So these are the things that people tend to do when they start to think about a transaction. They don't figure out what's important to them. And then they go into meetings with people and they're just being whipsawed by what the people's strategy is. I always try to sit down with a founder and say, what are you playing for? What motivates you? And then work backwards from that. And if working backwards from that fits our strategy, great. If it doesn't, I'll introduce them to other people who it does fit their strategy. Because there are thousands of ways to make money and thousands of ways to build a business. So if you're thinking about an investor, figure out what you want first and foremost. Now when you go to start to have those serious conversations, just realize really vet these people. Like my joke for private equity is everybody tries to get you in the middle of the river and then drown you, basically, right? Like they take you out and they're like, oh, it'll be so fun, it'll be so nice. And in the middle they start changing terms and doing other things that, you know, I wouldn't be proud of doing as a business person, and you probably wouldn't be proud of doing as a business person. And so then if you find that person who's really serious, who you can really trust, there's sort of two things that you can really focus on. Most people focus on valuation. I think it's like this vanity metric that people get really excited about. But terms are even more important than valuation. So if you're gonna do the terms, that's where you have to start asking yourself do I want a minority, do I want a majority? What sort of say at the table do I want? How does this work? Um, so I bring all this up to say that it's a hugely personal decision. You should not do it quickly. You should not quote unquote trust the experts. Your banker, your lawyer, other people will potentially lead you astray. You've got to trust your gut, you've got to vet the person, and you've got to have really frank conversations about like where you want to take the business ultimately. Um so for us, like what's been fantastic for us is we sit down, we know that someone wants to stay involved in the business, whether it's as CEO or with one of their hired people being CEO or someone that we mutually identify together as CEO. We keep the team as is because they're the engine of it. We try to make them better, as Jason was pointing out. And you just got to have alignment around that compounding strategy. Like if we want to grow X percent and they want to grow half of X percent, we're both gonna not get along. So you make that plan going in and you just execute the plan. And of course things go sideways sometimes. It's the nature of business. But if you trust each other, if you're on the same page, if you're good people, I mean that's really what we aspire to be. We aspire to be like the good guys at private equity, so to speak. You just grind the business together.
SPEAKER_01It sounds a lot like hiring. I've been doing a lot of hiring lately, and it's the same thing is uh and I love what you said that you work back from the end goal. So, like with everyone, we're we're always asking, like, uh, you know, what do they want? You know, like what what are those things? What what is the lifestyle that you want to live and and all those things because it it just pretty much knocks out uh so many you know, people down the road where it's like they'll say that they want the job, but then really they don't want the lifestyle that goes with it. So it's kind of counterintuitive to start with the job or the business at that point.
SPEAKER_03If you don't have alignment going in, you're just gonna have friction the whole way, you know. That's just how it is. But again, the the thing that's unique about this is you never get to fire them in the case of your investor. So, like once they're in, they're in. And the second piece is really what I said at the top like if you if you take the advice on where you want to wind up from investors, they're all just gonna talk their book and they're gonna smile at you, they're gonna compliment you, they're gonna tell you the best possible stuff in the world. And then about nine months in, you're gonna have this feeling of, well, I just wasted nine months of my life. I mean, I literally talked to a company today who was going really deep with a PE firm for literally eight months. And at the end of it, they're like, ah, the investment committee said the deal is too small. And you're like, deal's too small after eight months. You know, like I'm bigger than I was eight months ago. Like, how am I too small? You know? It's just, and again, that that's a function of like mercurial, bureaucratic, like whatever it is, people just root that out as soon as you can.
SPEAKER_01Yeah. Love it. Let me ask you a question. Um I've heard uh through the grapevine that like when it comes to insurance agencies, that under 2 million, no private equity really cares about going under. Like, there's like a sweet spot for private equity. There's a there's a there's a spot where it's like over 10 million where you might the multiples uh might jump. Um what are those kind of like cutoff points or what how do you see it?
SPEAKER_03And is that revenue or EBITDA for the numbers two and ten?
SPEAKER_01I I've heard people go off both, but I would speak to that as well.
SPEAKER_03So so this gets to where there is no true rule, no boiling rule, but generally, and I mean I'll I'll rationalize it and also make fun of it. The bigger you are, the more valuable you are. And the rational reason is you're more established, you're more mature, you've probably ironed out the kinks, et cetera, et cetera, et cetera. But I mean, the other argument for it is like, let's be honest, the more money people can shove into you, the more excited they are about you, because so much of Wall Street is a game of getting money out the door, so you can raise more money and charge more fees, basically. Um, so I I'll talk about it in terms of EBITDA. So generally speaking, less than 10 million of EBITDA, so you know, earnings for interest taxes, depreciation, but there's not a lot of that in agencies. 10 million is kind of that number where a lot of firms will really start to pay attention. Now, that number will creep up over time and it'll become a bigger number with inflation and everything else. But the core view here is the bigger you are, the more people can invest in you. And as a result of that, the more competitive it can get and the higher the valuation you can get. That being said, our firm likes to stay under 10 million of EBITDA because you find businesses that still have a lot more room to run. And you also have some of these conversations that are more founder-led as opposed to banker led. Like if you're 10 million plus EBITDA, you're probably hiring a bank, they're passing around a deck, and everyone's just competing over who's going to pay more, which is fine because sometimes the second highest or third highest bidder wins the deal. It's not always just who pays more, but but if you're sub-10 million EBITDA, the the the idea here that's interesting is you buy a business, you put your stake in the ground, you add smaller businesses around it, you integrate them, you make those better, and pretty quickly you're well north of 10 million EBADA yourself. And you kind of do the two or three years of hard work, and now you're in a completely different stratosphere. Um the the one thing I would say though, for folks who are listening that you know might be tired, might just be tired of the grind, um, there's always a buyer at some multiple, might be lower than others, um, for a business that's being rolled into another. So what what you're hearing kind of around the two or the ten or anything, that's usually probably for the initial platform investment where you need a certain business of a scale to plant your flag in the ground. But if you're just ready to retire, I mean there's almost always some home for the business at any scale.
SPEAKER_01I would love to know your advice on size of book. So if you let's say you lost your position right now and you're you wanted to start your own uh firm and you're only gonna buy insurance agencies, you're gonna go out and buy independent agencies. Um you're starting smaller, so smaller capital, you're probably looking at smaller uh agencies, but you know that the growth strategy would be to acquire and stack them, right? How would you like how would you go about that?
SPEAKER_03I think the most important thing is to be valuation disciplined while also having like a baseline level of quality. So, what do I mean by that? If you're kind of literally bootstrapping, because even that, like that kind of merger strategy is a bootstrap strategy, you know? It's like, how do I buy something and then buy something bigger? And it's a great strategy for folks who are listening and want to do something entrepreneurial. Stay where multiples are low. And that means smaller companies, that means small books of business, do the hard work of integrating a handful of small books of businesses as opposed to buying one that is two million by five that are 400,000, so to speak. Um, the one qualifier to that though, really low valuations sometimes are value traps because you're buying something that's toxic or broken or even worse, like fraudulent. So you you do have to have some baseline level of quality, but I wouldn't ask yourself at that scale to be like, oh, what's the absolute best best line of business I could be in? I would ask yourself, what is the absolute best line of business I could be in relative to valuation? Because you can always bootstrap your way up into the thing that is the the best line of business ultimately. Like valuation matters a lot, especially if you're going to do something small and nimble at the low end of the market.
SPEAKER_01Yeah. I always I always think the best strategy would be to um start. I mean, I I I see so many it seems like there there are so many people ready to retire with these older books that they haven't grown them forever, but they're established books, like you you know, and they're small. Um I just think it would be such a good strategy just to buy like absolutely no outbound, just all you're doing is acquiring, stack them, and then going to a certain level and then selling that as a so I think I think the older folks who don't want to retire is a great strategy because it's good for everybody.
SPEAKER_03Uh like like we're investing in a third-party administrator right now that's doing that, and it winds up being great for the sellers, where you know, the sellers don't want to invest in technology and they see this wave coming, they don't have a succession plan, there's never anybody who kind of groomed the business they could hand it off to family or otherwise. But, you know, $2 million is $2 million. So if they get a chance to exit a $2 million and go retire, like they'll take it. And the multiple in that $2 million might not be as much as it would be if they were, you know, 20 million uh of scale. So so that that works in and out of brokerage, it's a great strategy in general. I think the key thing that I'd add to what you just said though, if you agglomerate these businesses, you have to have growth. And so, so if you like whether you grow them yourself or otherwise, if you bought a business that was small and then you grew it, that'd be a super valuable asset. If you bought a business and it was stagnant, you're creating a house of cards. Um, the the number one thing I would say about these kind of consolidation strategies is that if you ever lose organic growth, you're cooked. But if you're growing organically and you're aggregating, sky's the limit.
SPEAKER_02So you have to buy well-functioning units that are already plug and play growth.
SPEAKER_03But again, enterprising young fellas who buy something can grow the thing faster than the past person did when they've been just kind of phoning it in for five or ten years. And the other thing too is you ask yourself, okay, well, was that person who's leaving, was it just relationship driven, and that's why they were so successful? And at the low end of the market, it's very common to have like an earnout requirement or other performance covenants that that require them to leave the business in good hands so that for them to get the full proceeds two years later, the people who used to be the relationship now believe you just as much as them.
SPEAKER_02So during due diligence, I'm curious, like just for entertainment value, what kind of surprises have come up? You know, what are what are the types of things that that you find and how can because I think that it could help somebody who's considering talking to a private equity firm to avoid doing those things, right?
SPEAKER_03Well, so so in terms of talking to a private equity firm, I think folks who are acting in good faith and legitimate, I'll come to that in a second. Um so for most people in the call, I'm gonna assume you're all good people and you know you you're gonna do your best. I I've maybe I should have said this for like the craziest experience. Like I've looked at deals where you go to like research the person and you can be like, oh, they have an FTC order for scamming grandmothers with like you know, clickbait, you know. And then by the way, like really professional investors go back that person if you're in the middle of a bubble, like we were a couple years ago, you know. Um I mean, biggest surprises are almost always that you get in and you realize the people have done toxic stuff, or sometimes you realize the business is a fraud, but you figure that out pretty early in diligence. Like, like if you because because fraud's almost always they the report numbers are too good to be true, right? And you look at the numbers, you're like, well, that's amazing. You're the first agency to ever ever have an 80% heap margin. They're like, I know I'm doing something right. You're like, nope, you're a fraud. So try to try to figure that out early. If if if if I am if I'm a good faith actor, first and foremost, I try to pick my counterparties appropriately, right? And it goes back to everything, like the the screening, the sorting, what we said up top. People would love to be like, oh, I've got to have like my data room appropriate, I've got to have all my things like you know, if if that's really what you're concerned about, you should hire a banker or a broker. But candidly, I've seen brokers miscalculate numbers. And you almost then like want to go back to the company and be like, um, so this guy you're paying is is is not reporting it correctly. Just so you know, I don't want to be awkward about it here, you know. Um in general, if you are hunting for the right type of partner, if you're telling people what they want so they can give you a quick no, and if you're just being transparent and forthright about your numbers, you're gonna get an honest answer. And at the end of the day, the same way that uh carrier and agent, you know, the numbers have to be the numbers. You can't you can't defy the laws of gravity, whatever those rules might be, and everyone's rules are different. It's the same for an investor. If they need you to be X or they need you to be Y, you know, they can tell you, I love you, you're fantastic, can't do it right now, but here's what I can do to be helpful. Um so that that's what I would say in general. Super cool.
SPEAKER_01Let's let's uh I'd love to start uh talking a little bit about AI and like what what we're at this kind of this crazy point right now where the AI agents are just like the possibilities are endless at this point. How how are you guys looking at all like your portfolio and you know maybe moving some of the processes to you know like AI and what what's possible with that?
SPEAKER_03So it's really early days. I'll give some views, and if you guys have me back in the future and all the views are wrong, I'll be the first to be like, yeah, it was early days. What do you say? You know, but but but it is important to try to have an opinion. So the the analogy I keep using is what happened with the internet. And maybe AI will be a lot faster, I totally get it, but compared to the internet, AI is less about totally new use cases, and it's just more about even greater efficiency than we ever saw. And then some people like to say, well, it's gonna happen overnight, to which really smart people will also point out like, do we have the power for it? It takes a while to build some power plants. So I just think in general we're kind of at that stage where it's going to change the world, and it's going to change the world on a multi-year, multi-decade timeframe. It's not going to change the world in the next, well, it will change the world, but not totally change the world in the next three years, plus or minus, if that makes sense. So, where do we like to stay? We like to stay in things that are relationship driven, which is very much B2B, but agency candidly has much more of a relationship driven than a lot. We like to stay in things that are complex and we like to stay in things where the internet didn't disrupt it, it actually made it better and more efficient. So, in general, if you look at your book of business, the lines you're in, the more simple things are probably going to get more commoditized. Your more simple outreach is probably going to get more commoditized. But the more complex lines, the more complex relationships, those are probably going to be places that are even more defensible. Oh, and by the way, you're going to actually have the ability to use off-the-shelf AI agents yourself to make yourself more productive and probably more profitable. So looking at insurance and even outside of insurance, there's a couple of themes we're seeing. Like everyone should be investing in this to the capacity they can. You shouldn't break the bank, you shouldn't mortgage your house, right? But you should like invest in this to the capacity you can. We have companies outside of insurance and in insurance who are finding a couple things. One, it's automating a lot of the kind of just grunt work communication tasks. And then when things get complex, it kicks it over to a person who actually can solve the problem. So that's a really helpful piece. Separately, when you think about all the number of reports and other stuff that have to be written, that's going to be like hugely productive and effective. The only thing, and I mean this as someone who lived in Silicon Valley for a few years and go back regularly, people in Silicon Valley still think they're like the overlords of everything else. So the the terms and conditions and the actual data integrity, like I would be careful what I'm putting into systems at this point for what it's worth. But I'm sure there's going to be some embarrassing moments for all sorts of the big players involved. And I'm sure we'll only get better and we'll get more institutional. But there will come a time where writing reports and everything else will just be so much more streamlined as a result of this. So that's all we're thinking about today for what it's worth. But oh, lastly, SEO is really like search engine optimization is really struggling. So if that's something that you've prioritized, you might want to think about more outbound or more other stuff to kind of pick up the slack of that. Because there's this notion of like answer engine optimization, which is going by different terms, but just it's just not what Google and SEO were. So you just sort of have to fill that hole one way or another.
SPEAKER_01Yeah, as far as like advertising your own business. Yeah, exactly.
SPEAKER_03Like for instance, there's a there's a company that I'm close to that they saw their leads through Google go down 70% at the same time that their price on Google was going up 10x. So, you know, it's still works for Google, right? Like clicks are down, prices are up. And that that's not true for all things, but for that specific company. But to the credit of that company, they just very quickly figured out how to do outbound sales for the first time. They had never really built that muscle, and then they were able to build the muscle when they were forced to. So I wouldn't just be I wouldn't be asleep at the wheel if I'd depend on SEO. I'd really diversify.
SPEAKER_01Yeah, I love that advice. The um it's funny that you said that. Like I I was just looking into um uh LLM SEO, which is very similar, but there's some nuances. I've noticed um I I use almost I use Chat GPT almost exclusively to search the web now. Just because it's so much more efficient. And yeah, so like um I started noticing that you know, some like it it'll give you like five or six companies for things, right? But like it throws in a couple wildcards, like a couple of new newer companies. So like I was looking into like why are those newer companies being shown? And and so there are some nuances to that, but again, you're looking at five, five or six companies out of all the companies. So you're gonna be shooting for those six spots.
SPEAKER_03That's tough. Absolutely. And and it's you know, it's also the kind of thing where like we don't know how effective those clicks are yet. You know, the thing that made Google Google was kind of out of the gate. Geico and everybody else was just seeing really great uh return on ad sales or ad spend. Um it's just it's too early to know. I mean, this is an anecdote, and I don't want to belabor it, but like I was trying to find this pharmacy in New York recently. Chat GPT was like, oh, I found the magic pharmacy that Google never found. And then like it's not a real pharmacy. They had this listing from a website from like three years ago. So you do get to this place where like the other the other advice is check everything that AI serves up because it's uh it's not always right. We're still the guinea pigs training the model right now.
SPEAKER_01Yes. It's it's like especially when you get into more complex models, it's like having a model check the other models answers for things and like cross-reference and give me three different uh sources and yeah.
SPEAKER_03Yeah, if I were if I were a scaled agency or working for a captive that had scale, I would lean into any AI agents I had on kind of the front end, and that's where I'm seeing agencies do the best work. And just realize that there's going to be some hiccups along the way, but we've all experienced the hiccups, and bring in the humans for the things that really, really matter and build your book of business around things where humans really really matter. So complex, high value, high emotion sort of high, high, you know, high, high value items. Lean into being people. Well, it's true. Like trust is gonna be even more important than ever, you know? Like if people actually think that you're like a real person who genuinely cares about them and is not here to scam them, it's gonna matter more than ever.
SPEAKER_01Yeah, I agree. 100%. I love it, man. What's one one piece of advice that you give an insurance agency owner uh going into the future?
SPEAKER_03I would absolutely say to just keep going. Like too often people stop for all the wrong reasons. And as long as you're pointing in the right direction, you just keep going. You put one foot in front of the other, you square your shoulders, and you go to the future. Now, if you need to change your direction, change your direction because nobody wants you to walk off a cliff. But if in your heart of hearts you know you got the right team, you got the right product, you got the right end markets, you just keep going.
SPEAKER_01Yeah.
SPEAKER_03Awesome.
SPEAKER_01Cool. So plug your stuff, man. Where where can people check your company out?
SPEAKER_03And you're Brandon Wolfe at Jordan Partners. You can reach me at bw at jordan-partners.com. And uh, if people are looking to build a category killer, I'd love to meet them. And even if they're not, still love to meet them. There's never enough friends in this life. Awesome.
SPEAKER_01Thanks so much. Thank you. I really appreciate it. Great to be here.
SPEAKER_02Awesome, man. We'll uh hold you to that and bring you back on for the AI discussion to see if you nailed it. I love that.
SPEAKER_03I'm the first person to rub my own face in it, so I'm happy to do it. Yeah. You have to, right? Yeah, awesome.
SPEAKER_04Cool, man. Thank you so much.
SPEAKER_00Thank you. Thanks, Brandon. Thanks. See ya.