For the past episode, we’ve been getting the consultant’s perspective on mergers and acquisitions. Today, we’ll have an insider’s perspective. Jim Kaloutas, a commercial painting contractor that has grown through acquisitions for over eight years, shares with us how to go through a successful acquisition. Jim discusses the importance of nailing the culture, skill transference, and having an internal champion in an organization. This episode will go from theory to practice, so make sure you don’t miss out.
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How To Ace An Acquisition With Jim Kaloutas
Pick An Internal Champion, Nail The Market Fit, Insist On Culture Match
If you’re following along with the show, you know that we had Episode 207 back in January of 2023 with Ryan Goral on Mergers and Acquisitions and that’s the consultant’s perspective, which is often very helpful. In this episode, we get the insider’s perspective from my guest, Jim Kaloutas. Kaloutas is a commercial painting contractor that has grown through acquisitions, six in the last years to incorporate industrial flooring and fireproofing into the organization.
We come from the contractor’s perspective talking about how to go through a successful acquisition. The great thing about Jim is that he is very clear on what he’s looking for when purchasing a company. We talk about the importance of nailing the culture, a transference of skill, and having an internal champion in your organization so that you can go through the process of an acquisition successfully.
We begin at the very beginning when Jim started his business as a young man when he was just nineteen with his father and grew through those initial learning and growing pains. It’s interesting when you think about the history of his company and how that history has then affected the way he goes through the acquisition process. You’ll want to read very carefully about some of the key aspects of the history and how that has influenced Jim as he has grown the business.
This is the insider’s view of acquisitions. We’re not talking about theory. We’re talking about practice. If you are thinking about acquisitions as a way of growing your business, this is the episode you need to read. I want to thank Jim for joining me. Thank you for reading the show. Please share it with anyone that you think would benefit from reading the show and as always, give us a rating and a review wherever you tune in to. Let’s dive into the interview.
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Jim, welcome to Construction Genius.
Thanks, Eric.
It’s my pleasure to have you on the show. A few weeks ago, I had a business broker on who specializes in acquisitions and it made me want to talk to someone who owns businesses and does the acquiring. I know, Jim, that’s one thing that you’ve done to grow your business. I’d like to ask you, what is your approach to acquisitions? Tell us a little bit about your business and your approach to acquisitions.
Looking back at my history, I started from nothing. I went to college for a month and dropped out. Acquisitions for me are about people and my approach. I tripped over acquisitions and all my acquisitions have been introduced to me by my employees and by my vendors. We found a way to make it work and found the chemistry to work. It’s been about bringing people together, and then growing the organization either in geography or adding additional services to what we do.
Tell us a little bit more about what you do.
I’m a commercial painting contractor, an industrial flooring contractor, and fireproofing contractor. We grew into those services in that order. Two typical customers that we go to are large commercial general contractors and facility managers operating their buildings.
Let’s go back to the beginning a little bit. You said you spent a little bit of time in college. It didn’t work for you. Why didn’t college work for you?
Coming out of high school, I’ve surfed my way through it, not literally but I got by and I wasn’t prepared. I wasn’t disciplined to be able to do the work when it came down to college. I’ve always had a curiosity. I loved learning. The learning continued after I dropped out of college but it came up in different ways.
Were your parents disappointed that you dropped out of college?
I would say they were. I would say even some of my neighbors were disappointed. I was dealing with a little bit of that. I immigrated here from Greece, so being part of an immigrant family, my sister helped with my college applications. She was probably a little bit more disappointed than my parents.
What did you do the next day after you dropped out of college?
My dad got me a job, so I continued working but it wasn’t long after that I started taking classes at a local construction college at Wentworth in Boston. I started taking night classes, plugging away, and learning things in a different way.
Why did you go into to the construction college specifically?
Growing up in the industry, I worked for my uncle who had a union painting company. I had grown up in construction. I had been around it, so it was natural for me to go there. Thinking about it, I probably should have gone right to Wentworth right out of high school but I didn’t know any better. I went into Electrical Engineering, so maybe I was a little over my head but I figured it out.
You go to the construction college. Were you going there specifically to come back and help out with the painting business that was already established in your family? What was your perspective there?
No, dad was a union painter at the time. When my uncle stopped doing the union painting, my dad went right out of the union hall. Dad always got laid off and I always did side work with dad. Being an immigrant, I always spoke a little bit better English than my dad. That’s when I started to learn the transaction of the business because my dad always did side work but it was me that wanted to turn it into a business.
Give me a little bit more. You’re a young man. What did you learn about selling construction services right at the beginning?
I learned to read people and it was in my early years that I realized some people liked my dad and I doing the work for them because they appreciated the quality, the hard work, and the effort that we put into it. I realized that some people hired us because we were very inexpensive. It was interesting for me to realize that as we raised our prices and as we grew the company because we started to develop some overhead that a lot of those customers that wanted us for a cheap price went away. That was a good thing and I didn’t realize it until after.
How did you feel when you first started raising your prices?
One of the hardest things as a business owner is to understand the value of that. I was very nervous and uncomfortable doing it but I got used to it. It evolved and I realized that that was very important because, for me, as I raised my prices, I got better employees. When I got better employees, I could get better customers. Those two things kept growing for me, better employees and better customers and it was most important to keep raising my prices to afford those better employees and better customers.
That’s an interesting perspective there because sometimes when we think of raising our prices, we think of it purely, “I need to make some more money.” That’s interesting that you saw the correlation there between getting better employees and therefore, getting better customers and being able to raise your prices then to get the employees and also then to get the customers. Was raising the prices like a filtering mechanism where you began to filter out the B and the C clients and could focus more on the higher-end clients?
For me, it started to shape what a good customer looked like. I always talk about the 1.0, the 2.0, and the 3.0. I’m probably up to my 4th or 5th generation of employees and customer because again, it’s evolved. When I think I’m done, I find another way of looking at an employee or a customer.
Let’s discuss that. That’s interesting. You’ve got your 1.0 and 2.0. Tell us if you can remember or if it comes to mind. When you think of employee 1.0 and customer 1.0, give us a brief description of that.
Employee 1.0, I would go pick them up from their home, put them in my vehicle, drive them to work, feed them lunch, and hope that they would come in the next day and keep trying to find more people like that. I probably have hired most of my friends in some way, shape, or form, so I’ve had to grow through that. A 1.0 as far as a customer in the early days. The local paint store would give my dad leads and we would go to either small property managers or small residential projects. They always had someone cheaper. Ultimately, back then, we were the cheapest ones and we were undercutting other people and not knowing that we were doing that.
How did you feel when you were in the 1.0 phase?
I didn’t know I was there until I went to the 2.0 phase or until I realized that I needed to make more money or I was frustrated that all the effort and the work that I was doing in my business weren’t doing much for me. I could go get a job somewhere else. I could make more money than if I added up all the level of effort that I put into it. It was about hitting the wall for me, getting frustrated, and then realizing I needed to do something. Pricing was one of those things that I needed to raise and then I watched things happen.
You hit that wall. Why did you not go? You’ve got an expensive job. At the beginning of 1.0 and it’s all on your shoulders. Many people hit that entrepreneurial wall and decide, “Forget this. I’m going to go work for somebody else.” What made you stick it out working for yourself?
Pigheaded determination is probably the best thing for me. That’s one of the things. As I’m reflecting of myself and my growth, there’s a lot of determination. Failure was not an option because the early days of being in business, at least the first five years, I was providing job security for my dad and my dad would be laid off from the painter’s union. It was that supplemental work that 8 to 10 months out of the year, my dad would work in the painter’s union but then in the afternoons, would come work with me. When he would be laid off, we would be there all day long together, so that was my late teens or early twenties.
To achieve growth, sometimes you have to have a lot of determination where your mindset does not see failure as an option. Click To TweetDo you enjoy working with your dad?
Very much. I think back and my dad is still with us. A lot of quality time together, learning, and growing and loved it.
How did your dad as a father handle working for his son?
It was interesting because there was something about my dad. In the early days when we worked together when we did side work, he never kept the money and paid me. We would pay all our materials and all of our employees, then he and I would split what was left over. He never wanted to take advantage of me because he would tell me the stories of all these other immigrant families that would have the kids go work but then collect all the money from the kids.
For him, it was a lot of pride for him not to take advantage of me as a child but what I learned was the transaction. At a very early age, I got to see jobs that he and I did together and we made no money. Our employees made more money than we did. For me, learning that transaction early on establish something for me.
You’re at the 2.0 stage. You’re raising your prices. You’re attracting better employees and clients. What was the next stage in the development of the organization?
Looking for some type of more than one transaction, more winter work and being able to keep more people busy. I remember going to repainting condominiums or looking to work for a property manager that always had repaints. It was looking for a little bit more steadiness rather than the one-off job. Looking for a little bit more length to a relationship maybe was part of it. It was seeing that there would be more of a relationship and there was a continuous flow of work rather than needing to reinvent it one transaction at a time.
I’m out in California and us, Californians, if it drops below 50, we start fussing and crying. You’re out there in New England, so the weather’s a little bit different. How did the realities of weather drive your acquisition over the years? You have painting, which is outside but also inside, then you have your flooring and your fire divisions or companies. Did that have any influence at all on that approach?
The acquisitions came much later but if you think about it when we’re painting, most of our stuff is inside and it’s changed a lot. The evolution for me was going from a residential exterior painting contractor to thinking about commercial work and that made a big difference. When it came to the acquisition, what I learned from my first acquisition was industrial flooring. We’re working in a facility and we’ve had painters and floor installers in this facility for many years year-round.
We have anywhere from 2 to 8 people in this one facility that we first started this industrial flooring with and they were year-round. It created some longer and that would probably be customer 3.0 or 4.0 that, “Here you are. You’re providing these services inside of a facility year-round, multiple services and you’re just moving around their one million square foot facility from project to project.”
That’s beautiful. I want to go back a little bit more. You started residential. What made you go into commercial?
Growth was always inside of me and I always wanted to do more and grow. The whole aspect of learning business and trying to understand business drove me as well. It was the natural progression of like, “Let’s go into this. Let’s go work for a contractor.” I remember my first year of business, I had to get insurance by the end of that year because we got referred to a contractor and that made a big difference. That turned into recurring revenue, so contractors for us or even the commercial work was much bigger projects working year-round. If contractors are not building, then they don’t have any work. For us, it’s like they’re always building and renovating. They turned into a steady stream of work for us.
Take us from 2.0 to 3.0. What did the customer and the employee 3.0 look like?
Relationship business. You’re working with them to provide some type of solution to what they have going on. There’s a lot of collaboration and it’s the same thing on the employee. The employee is looking for benefits, steady work, and year-round work. I’m not hiring seasonal people anymore. I’m hiring people that want to work with me because I’m providing benefits. I’m providing year-round work. It’s a much better employee and a much better relationship on the customer side.
When did you make the shift from being the entrepreneur who’s always saying yes to the entrepreneur who’s being pickier and is willing to say no? There’s a lot of power for us in entrepreneurship as we build our businesses to be willing and able to say no.
A lot of my learning and education came out of my desire to learn and grow. I was lucky enough to trip over the entrepreneur’s organization and I got into a peer group. I started to learn from my peers that were in different businesses but what I learned was that there are businesses business. There are twelve problems and we continually repeat them at different levels.
I started to learn and look at that. How do I make it recurring? How do I grow it? There was a lot of learning and reading. I remember reading the book Good to Great because I chose to apply the basic business fundamentals to a painting company. I chose to apply those to a subcontracting business. That’s how I learned to find a way to apply basic business principles to what I do.
There are businesses that continually repeat their problems at different levels. We have to look at that and learn why it is recurring and what you should do about it. Click To TweetYou talked about 12 business principles but what’s 1 or 2 of them that you consistently apply that you get the most leverage from?
Investing in myself, investing in my people, and always that whole growth mentality. At the end of the day, we’re in the relationship for the long haul. I could go back and I have relationships that go back 30 years. These are some of the principles that my parents taught me like, “You do right by people. You look out for people because it’s the right thing to do.” What I tripped over that was that I realized that people appreciate and respect that. That’s grown into relationships that I’m still working with people for over 30 years now.
When you say investing your people, what do you mean by that?
In the early days, it would probably be sending them to seminars, bringing in some type of coach or a speaker, having them have their own coaches, and signing them up for Vistage or other peer groups themselves. I’ve paid for employees to go get their MBAs, or whatever it takes. Probably in the last years was my choice to build a management team because up until that point, I was making my own decisions on the fly.
How do you measure success in terms of the investment that you make in people? Sometimes what happens is companies they throw money at bringing in someone who does leadership development or something like that. They hope for massive change and massive change doesn’t happen or maybe it’s a little tick for a minute then it goes back to regular or poorer performance. How do you measure that success?
For me, it comes down to the individuals and being able to not want the growth or investment in them for them more than they do. It’s about trying to find the right people that are willing to do something with the investment. We have invested in things. They learned it for that split second, then it went backward.
Acquisition is about trying to find the right people who are willing to do something with the investment. Click To TweetIt’s always been about investing for the present day of how are you going to apply what you learned and making sure we’re always talking about that. There are other things that people need to be learning and growing like they’re marinating themselves to be ready for the future as well. There has to be a healthy balance in both. At the end of the day, it comes down to the individual person and their core. Are they passionate about growth? Do they want to learn and grow? Do they have that curiosity in trying to look for that in individuals?
It’s a fallacy but one of the fallacies that I hear in business is people are reluctant to invest in their people because, “What happens if I spend all this money training them and developing them, then the competition takes them away?” Is that something you struggle with at all or do you just don’t worry about that?
I don’t worry about it. I’ve heard all those fallacies and you have to be doing it because the risk of not doing it is to be surrounded by people that you’re making all the decisions for them. That’s exhausting.
You make a good distinction here and it’s one that’s challenging. I like the marinating idea. People need to marinate on things and what they learn or what they first get exposed to now may not be used for many years. You’ve also got the immediate application. Can you give an example of the marinating strategy? What stuff are you doing to develop your people that isn’t going to make an immediate impact but will in the future?
For me, an example would be our CFO. She signed up for Vistage key person group and she’s going to be going through that. At the end of the day, there’ll be some things that she learns but it won’t be until after she’s had 24 or 36 meetings that she’s built enough references to be able to understand other people’s businesses and how they would apply. Rather than she might be taking a CFO boot camp and that will apply to something that she’ll get value out of right away. An analysis of how to do an analysis on the numbers and statistics would be valuable and she would get right away.
That’s interesting because you described it very well there. It takes time to build those hooks in people’s minds so that when they’re in one of those peer groups, they can then begin to translate what other peers are saying from different industries into their industry and see the application of what they’re doing and how it might help them. Going back now, you’ve got 1.0, 2.0, 3.0 then you mentioned 4.0 in terms of employees and customers. What distinguishes the 4.0 from the 3.0?
From an employee perspective, the 4.0 in my mind would be someone looking at a career path for them and thinking about what they could be. Being many years in business, I can now look and show people examples of people’s career paths and now we can start to build models around that and structure around that.
In a lot of the training that we do with our field, we have a tendency to say, “Here’s the career path. Here’s where you could start in the field, and then you’re going to end up going in one direction into operations or another direction into sales. Your knowledge of painting, flooring or fireproofing would help you in either operations or in sales.” I’ve watched people go through both of those career tracks.
Is that idea of career pathing which is tremendously important for any organization, something you stumbled upon? Is that something you thought about at the beginning time or did it occur to you one day, “I need to be able to articulate clearly to people where they are, where they’re going, and what they need to do to get there?”
For me, it came out of doing a field leadership program that we realized that we needed more foremen to be able to run our projects. The only way that we’re going to get more foremen is to build the field managers that would grow them. We established a field leadership program and in that field leadership program, we realized, “Here are the steps that some of these field leaders have taken. Let’s start sharing it. Let’s give them the vision. Let’s give them the why,” and that’s where it came out of. It came out of some initial training that we did and everybody latched onto it.
I’m thinking of a number of my clients who have tremendously talented people in their organizations and there’s only so many seats in the organization at the executive level for people to matriculate into. How did that thinking influence your acquisition strategy in terms of creating opportunities for people who may not have them if you remained the company that you were before you began acquisitions?
You were thinking exactly what I was thinking because you have people. Ultimately, if you cap your growth, these people will say, “I have to move on because there’s no more opportunity for me.” My view was that I needed to always be growing myself because if I wasn’t a leader that was thinking about a bigger future, then everybody that’s on my team might grow right past me.
That’s okay if they do and they should move on and go work somewhere else if I’m not providing them that opportunity but for me, I’ve always had that passion for growth. I’m always looking for those opportunities. Either it’s through growing top line or is it by improving internal systems. It can always be both but as I tripped over those acquisition opportunities, it did create more opportunities for more people. We never had HR before, a CFO, a COO, and project executives. We just had individual PMs. For us, all of that acquisition and growth that we did helped us establish even bigger career paths for some of the employees on the overhead side.
Can you give us an example of a time when you had someone who was very talented but they were not a fit in your organization and over time, you came to realize that and you had to move them on from your organization?
You’re saying I’m moving them on because of a poor culture fit or I’m moving them on because I don’t have an opportunity for them?
I’m thinking more along the lines of culture fit.
From a culture fit perspective, we’ve had a lot of great people work for us over the years. It pains you because sometimes people have spent 10 and 15 years with you. At the end of the day, for me, it was about doing what was right for that individual. We’ve had some conversations with them about what’s working and what’s not working and to share the pain.
That way, when we did finally get to that point, it wasn’t something that we thought about on a Monday and delivered to them on a Friday. For us, it’s because people are at the core of who we are. Painstakingly, we worked with them to help them in some way, shape, or form but ultimately realized that it wasn’t a good fit. We had to have that difficult conversation and they got it. They understood it. We had enough difficult conversations leading up to that point. We had it and parted ways and we still talk.
It’s interesting because when I’m working with my clients. Many times, the biggest challenge that someone in your position has is letting go of talented people who aren’t a culture fit and they drag it out. Ultimately, they do have to let them go. Is that something you’ve found to be a challenge in your career? If so, how have you been able to deal with that?
Dealing with people is always a difficult thing when you have someone that is a high performer. You have to come up with or even consider parting ways with them is painful and difficult. I remember early on in developing our company values. I remember the coach that I had at the time. One of the things he shared was the importance. You have the right value that you’re willing to let someone go that’s a high performer that is not meeting.
That’s when you have some real stickiness to your values. That lived with me and this is going back many years ago. It’s that learning of the importance of that stickiness and not to ruin the core of the company and to protect the company. That person has to move on as even if it’s painful. You know you’re doing right by the company when you’re doing right by that individual to move and move them on.
I just want to make a note of that for everyone who’s reading. If you as the CEO of your organization can do exactly what Jim described, your company is going to be way healthier and way more successful. I appreciate you breaking that down, Jim. It’s interesting we began our conversation here with acquisitions but we’ve spent a lot of time talking about building your business and establishing the culture and growing the company. The way that you’ve built the initial business from 1.0 to 4.0, how has that affected your acquisition strategy as your business has developed?
As we’re growing overhead, it has helped us to put people in places to help us do the rollup. The way for us is acquisition. The only reason the acquisition works for us is that the companies that we’re merging with have a similar culture. Their people are aligned. They know how to take care of their people and that’s made it real easy. We’ll figure out all the other stuff. They typically don’t have the systems we have.
Most of the acquisitions that we’ve done have been relatively small compared to us but one of the things that most of the owners that we’ve acquired have stayed and worked with us. We embrace it and like that because it’s part of their stickiness. It’s part of their future but it’s interesting after every person that we acquired. Within 6 months or 1 year, they take a long vacation that they haven’t been able to take and probably God only knows how long as a business owner.
The biggest thing for them is to be a part of something bigger, do the things that they love, and not be held down by the things that they couldn’t stand doing. In some of the acquisitions that we’ve done over the years, they hated doing operations. They hated doing billing and sales. Each one has been different. It was interesting. We supported them in the things that they didn’t like to do and it was like a 1 plus 1 equals 3. We would double most of them within the first year.
Was that a conscious strategy to go after companies that were smaller than you in revenue in terms of the acquisition or was there a proportion you were looking at a ratio of your size to their size? Was that conscious or did it just occur?
Nothing was conscious. Everything was by accident. We tripped over these acquisitions and we happened to go forward with them. We learned and we grew from each one. Again, doing six of them, I’ve learned something different after each one, whether it’s about customers or people. The first one we did, we added a service. We had to learn a whole new service.
What did you add? Tell us what you had added.
We added industrial flooring in the first acquisition we did. We had to learn a whole other industry. It was similar because we were used to dealing with epoxy coatings on walls and we’ve done an occasional epoxy floor but this took it to a whole other level with epoxy motors and urethane cement. It turns into like a science experiment. We were doing science by mixing chemicals and applying them to concrete floors.
Were you in a secure enough financial position? When you start saying experiments and all that stuff, I start thinking of money being spent. Were you in this secure financial position to be able to take on that additional cost of learning the business that you acquired?
We’ve always felt that it was important to have a strong balance sheet. We came out of the great recession in an okay spot. We went through it because we had a strong balance sheet. We were in a strong balance sheet situation. Going into industrial flooring, industrial flooring is nothing like painting because if you mess up a paint job, you can touch it up and you can fix it.
You mess up an epoxy floor, you are redoing it all over again from scratch and the costs don’t turn into another 10%. It’s another 100%. When we first took it on, we were messing up 1 out of every 4 floors. There was a huge expensive learning at the beginning to embrace it but we were fortunate with the business owner that sold us the business. He was like a professor. He knew this stuff and he helped us through it to be able to get it. Well said from your perspective. You need some money behind you to be able to figure it out because I had a lot of blind spots of what was going to work and what wasn’t going to work.
You talk about not having this grand acquisition strategy and you tripped over some of them but sometimes when we trip, we pick ourselves up, dust ourselves off, keep on walking, and miss the opportunity. What made you think, “Maybe this is something that we should pursue,” as far as the acquisition is concerned?
It’s seeing it helping us grow our talent. It’s one of the bigger values of doing acquisitions. Most people don’t even think of it because they think of EBITDA and profit. For me, the biggest positive that we got out of acquisitions is these craftspeople that have been working for these companies for 20 or 30 years. You can’t buy those people. They will never come to work for you but when you do an acquisition, you get these talented people that you’ve never seen before and you couldn’t even imagine the quality of workmanship that these people do. That was probably the biggest gold that we found in our acquisitions that we never realized was there.
Let’s talk about that. I’m working for the acquiring company and the person who’s being acquired. Let’s just say I’ve been there for many years and I’m a high performer. All of a sudden, here comes Jim and his commercial painting company buying this industrial flooring, “Who’s this guy?” What do you do to reassure me on day one, when the acquisition has taken place that there’s a place for me in the company and this is a place that I want to stay?
In the first couple of acquisitions, the most important thing that I found is that I need to meet you personally. I need to shake your hand. I need to know your name and learn a little bit something about you. For me, that was the most important thing, to connect at the human level because we’re people working with people. Sometimes people take that for granted and don’t realize that people are not numbers. People are people and the only reason people are doing what they do at work is because of what’s at home, their family, and their personal life. I connect with that.
As I started to learn more about that aspect of it, there was always a mismatch in benefits. One of the things that I found myself doing was trying to level up the benefits to making sure they’re as good as the people that we’re acquiring. The next thing I did is I would give every employee to the acquiring company one week’s paycheck right up front and say, “Thank you for coming on board.” It’s plain and simple. It’s my token to tell you, “I’m going to mess up. I’m not going to get everything perfect but you matter to me, so I’m going to write you a check upfront for one week’s pay as soon as I buy the company.”
Let’s talk a little bit more about this idea of people working. Behind that, they have the motive for working. You described it as something other than that which might be their families and things like that. As you’re describing your journey here, I know there’s a ton of hard work behind it. How have you, as an entrepreneur, balanced your home and your work life over the years?
I’m fortunate that I did not meet my wife until I was in my late 30s. I burnt through a lot of girlfriends because there was a lot of effort and work in the business in the early days. I don’t believe there is ever a balance because you have to do whatever it takes to make sure that it works. There is pain and strain there on both sides. Again, if you’re not providing for the family, then you’re going to have other pressure and stress.
There’s an interesting insight there. You didn’t get married until a little later in life and that was because of the energy and effort that was going into building the company early in life.
Some people would tell me that I didn’t meet my wife yet and she was the love of my life and that’s why I didn’t do it. I would say that my priorities were different in my 20s and 30s.
I understand that but it’s interesting because you made the point well that there are sacrifices that people have to make. It’s important as we’re considering the choices that we make in our lives to balance or to count the costs. If I’ve committed to doing this business building, am I in a place in my life where I should get into a committed relationship at this point or is that something that I need to wait until I have a little less need for the intensity on the work side so that I can pay the attention to the home side that is required?
Is there a committed enough relationship to taking on the business that would work? It could go that way. There are a lot of business owners that have unbelievable support from the home front and they met a person that is super supportive to be able to help with the business and with the family. I’ve seen both fronts.
That’s another interesting point. We’re stating the obvious here but you’ve got to be on the same page with your spouse or your partner about what your relationship is going to look like, what the expectations are for the way that life is going to go, and the support there is absolutely essential. Going back to this idea of acquisitions, you’ve gone through six in the last few years. You’ve got some callouses, some scars, and some wins. What do you think are some details that people miss when they’re considering an acquisition?
A lot of times, what I’ve seen is assuming that the systems or the people that I was acquiring were doing a lot of the similar things that I was doing. One of the biggest surprises that I’ve had in all the acquisitions that I’ve done and granted that the acquisitions that I’ve done have been somewhere between $1 million and $3 million in sales each of the acquisitions but none of them were doing job costing.
For me, I learned that lesson of job costing five years into the business and not understanding that and having my hat handed to me, understanding what that meant, and starting to take control of the business. I’m surprised by how many business owners are driving their businesses without job costing. That was one of the bigger surprises for us.
It can be surprising how many business owners are driving their businesses without job costing. Click To TweetIt reminds me of those remodeling shows when they buy the house and it looks awesome. They knock down the first wall and all of a sudden, there’s the termites and everything like that. Other than the job costing, what was the biggest surprise to you? Can you give us an example of one of the biggest surprises that shocked you after you had purchased the business? Perhaps one that because of that, you learned to look for that when you were go doing another acquisition.
The thing that also surprised me was probably that not everybody can sell the service and there is a much higher education that I needed to do all of our existing people in order to sell that service. For me, it was around the epoxy flooring. For us to be able to sell the services, there was a lot of education that needed to go in. It wasn’t as much as about the company that I acquired. It was more around the surprise of us thinking it would be easy to sell that service.
The biggest frustration was that our salespeople were selling services that weren’t right for the customer. When operations went out there, we needed to redo the system to make sure it was the right system for the customer and that would always cost us more money. It was the right thing for the customer, so then we went back upstream to solve increase the education of the salespeople and eliminate some people that shouldn’t be selling floors. Working through that was probably the bigger surprise of how much harder it would be to sell that service.
From your perspective, as someone who has acquired a number of businesses over the years, what does a business need to do to make itself attractive to a buyer?
There are finances and books. They should know their books. Their books should run clean and being able to do monthly financial statements, close their books every month because the more financial understanding you have of your own business, it’s cleaner. Your performance will go up anyways. Invest in yourself to understanding your finances.
If you can take it to the level that you can do job costing, that’s wonderful but know your income statement every month, know your balance sheet, and separate out personal items. One of the things that I do on a regular basis is I use my American Express stuff on personal items but on the receipt, once I’m done doing it, I’ll write on it JJK personal or JJK loan.
My accounting department knows when they see that receipt coming in from American Express and Jim wrote on it JJK loan, that’s something that he personally charged to himself and I pay the company back for that. If you can keep your books clean, if you can separate out your personal stuff, it’s always a much better thing to the acquirer.
Have you ever been in a situation where you’ve looked at an acquisition, you’re excited about the acquisition, and you’ve had to check yourself because it wasn’t the right fit for your organization?
Multiple times because as an entrepreneur, I get excited about the opportunity. For me, it’s probably been around looking at other services and adding other services. I need to be very selective to make sure that the added service complements what we do. The biggest thing for me is to be able to say no. I’ve said no and someone said, “You’re in construction. You do the stuff. How about buying a plumbing company?” I could run it but it isn’t a nice compliment to what we do.
We had someone inquire about us buying a casework company. This is a company that we’re working with alongside on every construction site because they’re making all the cabinets or the casework that’s being installed in these labs and these buildings. It’s not a good fit because they’re manufacturing something in a shop and installing it out in the field. There’s no transfer of the skills on our employees. One of the things where we’re doing the epoxy floors, the fireproofing, and the painting, a good 20% of our employees will bounce around amongst all the trades because their skills are transferrable. Having those transferrable trades skills helps in the acquisitions.
From what you’ve said so far, one of the keys is the culture. That seems to be the primary one when you’re doing an acquisition. Is that correct? The second one then is some degree of transference of skill. You’re going slightly to the right or to the left. You’re not going all the way over to an entirely new industry that there is no transference. Are there any other parameters that you set in your mind upfront going into looking and considering in an acquisition?
The other thing that’s important for us is to have someone internally that would help run it or lead it. If there isn’t someone from the mothership, then we’ve slowed down some of our acquisitions because we didn’t have a person to run it. We didn’t have someone that could take it on or lead it. That was always important for us.
Culture is number one. I’m not necessarily prioritizing this but transfer of skill and then that internal champion, someone who can run the business right out of the gate. Did I hear that correctly?
Spot on. Thank you for developing my structure for me.
You’re welcome. That’s what I do. As we’re wrapping up, Jim, I think this is tremendous. Feel free to summarize anything that you’ve shared so far. Let’s say I’ve reached a point in my business where I have perhaps a whole bunch of up-and-comers. I’m thinking about growing the business. I want to be able to do an acquisition. I maybe have a juicy target. What are two or three things I need to consider prior to making an acquisition, prior to getting into that whole conversation and decision-making process?
Right from the top is getting to know them as people. Would you like to work with this person and establish with this person that you’re looking to acquire? What would success look like years from now if I was sitting down across the table from you and you and I were celebrating? We’ve been doing this for years. Make sure that you’re aligned with that.
One of the early consultants that I had shared with me. He’s like, “Jim, there is no taking advantage of the person. There is no, ‘How do you negotiate something in your favor?’ because if you do and it’s not in the other person’s favor, it’s going to show up later. It’s going to be like that pebble in the shoe.” I got that early on because it’s part of who I am as a person, to always do right by people. That was probably at the core, making sure that you could see yourself working with this person. You have some alignment on the culture, how you handle people, and how you take care of people.
It’s interesting though because it sounds like with all of your acquisitions, the people that you’ve acquired, or the owners of the company have stayed with your business for a period of time. Is that right?
Every person that we’ve acquired has stayed with us for a period of time, some short and some long.
Last question here, have you ever had a challenge? I don’t know about you but I have my own business because it’s my gig. I might have an ego challenge if someone acquired me, coming into the business. How have you managed that ego issue if there ever has been one when you’re bringing people who have owned their own businesses into the mothership?
That’s been one of my biggest surprises. Most of these people have checked their egos. I also have an ego but for me, I know how to also check my ego for what’s for the better of the whole. My bigger surprise is that a lot of these people who are driving their own buses and running their own businesses have checked their egos and said, “Jim, whatever you want.” I’ve been super surprised and I don’t know if I’ve picked, got lucky with gracious people but that’s been my biggest surprise.
What do you do to check your ego?
Checking my ego for me is realizing that it’s not about me and it’s about something bigger and always getting grounded in the why and what’s at stake for me. The organization is way more important than me. It’s being able to park myself, my feelings, and that stuff. I don’t know if it’s been because of maturity, because I’ve been humbled over the years, or because of all the bumps in the road but it’s not about me. I’m sure my wife and kids have been gracious enough to let me know that it’s not about me as well.
At the end of your career, what legacy would you like to leave?
It’s making an impact in the construction industry. Taking care of your employees and having a successful construction business is probably the biggest thing for me. I’ve seen enough family businesses and construction businesses run in a way that takes advantage of people. It’s one of those things that I am all about looking out for people and creating something bigger than me that’s about the people.
For the last question, we needed a restaurant recommendation in the greater Boston area. We had talked earlier. It seems like you got a couple of recommendations for us. Please, if we’re visiting Boston, where do we need to go?
I have two considerations for you. You have FRANK in Beverly, Massachusetts, which is a true farm-to-table and nice food. You can’t go wrong with anything on their menu. The other one would be The New Deal Deli in Revere, Massachusetts. You’ll never find some of the cold cuts and cheeses that they have in there, anywhere else. If you want a true Italian sandwich, that’s the place you would go.
Jim, you’ve been very generous with your time here. Thank you for joining us. I appreciate the insights that you shared with us.
My pleasure. Thanks for having me.
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Thank you for reading my interview with Jim. I know you enjoyed it because I did. It was a great interview. Feel free to check out those restaurant recommendations, FRANK, and also the New Deal Deli if you’re ever in the Boston area. I want you to take time to consider the advice that Jim gave in terms of those acquisitions. Think about how you might be able to grow your business that way.
If you ever need some help putting together a strategy for acquisitions and you need an outside sounding board, contact me on my website, ConstructionGenius.com. It’s an aspect of my business that I help my clients with, thinking through those strategic type decisions. I’d be happy to discuss with you if or how I can help you. If you are the owner of a construction company, those are the clients that I work with and so feel free to reach out to me. I’ll catch you on the next episode.
Important Links
- Ryan Goral on Mergers and Acquisitions – Ep 207 – past episode
- Kaloutas
- Good to Great
- Vistage
- FRANK
- https://www.LinkedIn.com/in/jim-kaloutas-731a3910/
- The New Deal Deli
- Construction Genius Book
About Jim Kaloutas
Kaloutas is one of the leading commercial painting, industrial flooring and fireproofing companies here in New England, with headquarters in Peabody, MA, and additional locations in Holbrook, MA, Worcester, MA, Portsmouth, NH, Hartford, CT, Providence, RI and Portland, ME.
