A guy in our industry has spent years buying paving companies.
On one deal the appraisal said two million dollars of equipment. He closed. He walked the yard. The equipment was junk.
He spent close to eight hundred thousand dollars fixing machines just to get through work that was already sold. That cost never showed up in the model. It showed up in the field, after the money was gone.
I think about that story constantly.
The thing that carries you through it is having someone on your team who has actually done the work. We paused our own buying for six months to make sure we had that, and I want to walk through everything it protects you from.
Start with what you are buying.
On paper a roller is a number with a dollar value beside it. In the yard it is either a machine that lays a clean mat or one that breaks down every afternoon and quietly drains your cash.
I cannot tell those two apart by looking, and neither can my partner Chris. We both came up in finance. Jeff can. Jeff has been paving since 1995 and built Nationwide, the operating company we partnered with to do this. He walks a yard and within minutes he knows what is solid and what got cleaned up for the sale.
So we bring our own mechanic to diligence now. We stopped trusting an appraisal with a name on it we have never heard of. That one habit is the only reason we are not the guy who wired the money and inherited the junk.
The next thing expertise buys you is the money the last owner left sitting in the business.
You will not see it in the financials, because on the financials it just looks like the company is running a little thin. You see it by understanding how the work gets priced and done.
When we bought Cornerstone in Texas the margins were lower than they should have been. I could see that much in the numbers. I could not tell you why. Jeff found it in about a day.
They were doing six million dollars a year in concrete work and subbing every bit of it out at zero markup, because that was how the old owners had always won the paving attached to it. Jeff put twenty percent on it and nobody pushed back. One of the original owners said he wished he had done it years ago.
Same story with traffic control. They were paying an outside crew around fifty-five hundred a day across four or five sites for work we already handle in house everywhere else. We pulled it in and the cost dropped to about twenty-four hundred a day.
None of that was hidden. It was sitting in plain view for anyone who had run these jobs before.
The biggest risk in buying a small company is that you are really buying one person's judgment, and that person can quit.
A private equity shop almost forces them to. They put the numbers on the table and make it obvious they do not care who stays.
But the seller has guys who have been with him twenty and thirty years. He knows their kids. He has to run into these people at the grocery store on Saturday. So he either refuses to sell or he mentally checks out the day the wire clears, and the knowledge you actually paid for walks out behind him.
Jeff sells the opposite, because he is one of them. When he sits across from a seller, the guy can tell in five minutes that Jeff respects what he built. We take the back office these owners always hated off their hands, the billing and the insurance headaches, and we tell them to keep doing the part they love out on the job.
David at Cornerstone is seventy-two. The first thing he told Jeff was that he was out in six months. Last week he said he talked it over with his wife and he is staying until he is eighty. He is doing about a third of what he used to and having more fun than he has had in years.
The guy we were most afraid of losing still shows up every day.
Say you clear all of that. You buy well, you keep the people, you fix the obvious leaks.
Then you decide to grow, and a completely new set of things starts to break.
Chris repeats a line that took me a while to really hear. Growth equals risk.
The team that took a company from one million to ten is not automatically the team that takes it to twenty. The process that held up at two million a month will not hold at five.
When you push, you upend how people work and how they feel about being there, and if you do not bring them with you, you can lose ten to fifteen percent of your people at the exact moment you need them most.
The fix is simple and almost everyone skips it. You tell people where the company is going and why.
At Nationwide the operations team got up in front of the whole crew and laid out the plan to double the division's revenue in one month. We bought everyone Chick-fil-A and walked them through it.
By the end the rake man could see a path to running equipment. The operator could see himself as a foreman. People stopped guessing about what was happening above them and started asking how they get there.
Then there is the duct tape.
Every small operation is held together by a few informal habits that work fine until the day they don't. Cornerstone ran quality control by having the ops manager and the project managers FaceTime crews to eyeball the work.
That is fine at four or five jobs a day. At twenty-five jobs a day, half of them running at two in the morning to finish a parking lot before the store opens, there is no FaceTiming your way through it.
The job costing was the same kind of thing. The old system could not cleanly tell us what one crew on one job actually cost us, which is exactly how margin leaks out while everyone swears the company is healthy.
We spent three months finding what would break before we leaned on it, rebuilt those pieces, and ran them in practice before the real push.
The version of this that scares me most is what Chris calls founder magic.
A guy who has bid twenty thousand jobs can glance at a parking lot and call it a thirty percent margin, and he is usually right within a point or two. Ask him how he got there and he goes quiet. He cannot teach it to anyone.
He is a great estimator. The problem is he is the only one who can do it.
So we pulled what was in his head into data and built it into software, and now someone without twenty-five years of instinct can put out a bid that is fast and consistent. Then we track every job against the estimate and adjust when we are off.
How you grow is its own trap. Buying is fast, and you inherit every problem you did not create along with people who never chose you. Building from scratch is slower and far less predictable.
We opened up Phoenix and the playbook that works in thirty other states just did not land the same. It took a couple of months to figure that market out.
Nothing here is copy and paste, and assuming it is will leave a yard full of expensive equipment and a payroll with nothing to do.
This is why we stopped buying for six months and put the time into people and systems first.
The model was always the easy part. Whether a roll-up turns into a real company gets decided after the money leaves the account. It happens out on the job and in the operations, by people who knew the work long before we did.
If you are looking at buying into an industry you do not know cold, that is the seat you fill before anything else.
— Sam Silverman
Silverman Capital
