JF2054: Selling Your Business With Steve Rozenberg

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Steve is the Vice President of Education for Mynd Property Management. Steve owned a property management company managing about 1000 SFR and he is also an airline pilot for United Airlines. In this episode, he shares the challenges and the psychological issues he was facing when it came to selling his successful business. 

The previous episode Steve Rozenberg was on – https://joefairless.com/podcast/jf172-pros-and-cons-of-investing-in-low-income-properties/

 

Steve Rozenberg Real Estate Background:

  • Vice President of Education for Mynd Property Management
  • Educates investors about the benefits of small residential investing with a variety of content, including podcasts, video blogs and more
  • Based in Houston, TX
  • Say hi to him at https://www.mynd.co/

 

Best Ever Tweet:

“Are we doing what’s best for the team and for ourselves by keeping it, or are we doing what’s best by selling it?” – Steve Rozenberg


TRANSCRIPTION

Joe Fairless:  Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever; we don’t get into any fluffy stuff. With us today, Steve Rozenberg. How are you doing, Steve?

Steve Rozenberg: I’m doing good, Joe. How are you, buddy?

Joe Fairless: I’m doing great and looking forward to our conversation again. And Best Ever listeners, you can hear Steve’s other interviews. Just google his name plus my name, you’ll get a couple other interviews that we’ve done. Today we’re going to be talking about lessons he learned and experiences he had from selling his business that I interviewed him about previously. So now, Steve is the Vice President of Education for Mynd Property Management. They’ve got over 10,000 single-family home properties. He educates investors about the benefits of small residential investing, with a variety of content including podcasts, videos, and other things like that.

So our focus today is going to be on the sale of his property management company and lessons he learned, so that should you come across an opportunity to sell your business or get into a venture, where eventually you want to sell, well, this conversation will be helpful for you. So with that being said, Steve, first, do you want to just give a refresher of your background, and then we’ll go right into it?

Steve Rozenberg: Absolutely. So I’m down in Houston, Texas, and we owned a property management company. We were managing about 1,000 units, single-family homes. I’m also an airline pilot, so I actually have a full-time career, you could say.

Joe Fairless: I didn’t know you still had a full-time career as an airline pilot.

Steve Rozenberg: Yeah, I fly 787s for United Airlines.

Joe Fairless: Huh! Alright.

Steve Rozenberg: I do international stuff. So you can have a career and build a business and sell it; it can be done.

Joe Fairless: Wow. Impressive.

Steve Rozenberg: Yeah. So we were building our business and thinking of taking over the world as everyone does, and we’re going through the trials and tribulations that we all have. We were looking to expand in multiple cities and had been approached about maybe doing some licensing and franchising. Because I do international travel and I speak internationally as well, we were actually looking at maybe doing some stuff in Malaysia as well as in, possibly, Australia, just exploring the ideas with some people. So we were doing very well, our business was built on systems, processes, procedures, a lot of checklists because of my airline background; we implemented a lot of those things. So it was a very optimally-run company that was outsourced about 60% of it with virtual assistants in Mexico.

So we had a lot of leverage, and so we were very, I guess, in hindsight, we really were a prime company to be acquired or merged, however you want to call it, because our costs were low and our efficiency was very high. We were doing that to streamline for scalability and leverage on a growth model, and we had done this in about six years, this whole growth spurt.

So as we kept going, my role in the company was sales and marketing. So I was the one that was the face, tip of the spear if you will, and my business partner was the integrator, and he was the operator of the business. So no one really ever knew who he was. But I was out there, bringing in people interested. A lot of things we did where we’d redirect funds. So I’d go speak in other countries or in another states on the West Coast or other places, and redirect them to invest in Houston or into Texas, where we could manage the properties for a much lower price than what they could acquire something in let’s say the Bay area.

So as this progressed, we got very well known in the industry with systems and processes, and we got approached by a company. We had a couple of people actually approach us, but we really liked the people at Mynd, and when you start looking at this being a possibility – and Joe, I don’t know if you’ve ever gone through this… It’s very interesting because you’re taking something that you’ve built out of an idea, like a thought, you’ve built it up into a structured, scalable model. It truly was a business that was, for the most part running without us, unless we wanted to grow it, and you have employees and you have staff, so there’s a lot of loyalty, and you’re taking that and someone says, “We want what you have. We want to take it,” and there’s a lot of mental torment that goes on in your brain, because there’s loyalty, but there’s also your own loyalty to your family and to your time and what is it worth. My business partner and I, we had a lot of conversations on it, and it’s a tough thing to go through if you’ve never done it.

Now, a lot of people sell because maybe they’re losing their business or having challenges. We were the opposite; we were skyrocketing, and this just happened to come up. Again, I don’t know if you or your listeners have ever gone through this at some variation. There’s a lot of self-checking that goes on internally, a lot of internal dialogue. “Are you making the right decision or the wrong decision?” And there’s a lot of stuff that you’re going to mentally go through. There’s a lot of regret, a lot of emotions in the negotiations, which we all know is not the thing to do, but you’re selling the last seven years of your life, and you’re putting a dollar amount on it, and the acquiring company.

To their credit– when you’re building a business, nobody really knows the battle scars that we all bear when you’re growing a business. We know it and we’re like, “Wait a second. I remember sleepless nights, and trying to fund, and this and that,”, and they’re just like, “Hey, we like the asset, we’re ready to move, let’s sign the contract and go,” and you want a little coddling, you want a little hugging, a little bit. So it was a definitely– I don’t wanna say, over-emotional, but there was a challenge, mentally, to get over it and deal with the situation at hand, of “Are we doing what’s best for the team and for ourselves by keeping it, or are we doing what’s best by selling it?” That’s a tough question to go through, I can tell you that.

Joe Fairless: How do you find an answer to that question?

Steve Rozenberg: I’ll tell you what. We went on facts, we went on data, because the data doesn’t lie, the facts don’t lie. In the property management industry, there’s a lot of consolidation, number one. Number two, there’s a lot of disruptors starting to come in. It starts on the third-party cursory, like the property management software, and the apps, and all those things, and you can see the trend of it. The circle is getting smaller and smaller where they say, “Oh, you can’t outsource that” or “You can’t turn that into an app. This is a personalized business,” and a year later, that’s gone, and then, they say it again. So we were seeing the writing on the wall. We were also seeing that a lot of the larger scale funds, venture capital, private equity, they were looking at the property management industry as an industry that’s almost a– I don’t want to say recession-proof, but in good times, investors are buying properties so property management scales. In bad times, homeowners can’t sell their properties, so they turn them into management properties. So any kind of the equation, you’re always getting business, essentially.

So we knew that the larger venture capital and people were looking at this, and they were starting to gobble up the mom and pops. So what we were seeing is, what’s happening is, the small– I call them mom and pops, but the smaller unit management companies, they were getting eaten up a little bit. A lot of them, the average property manager age was 58 and a half years old. So a lot of them want to sunset; they want to go off and call it. Their kids don’t want it because they’ve seen their parents run themselves into the ground being a property manager, so they’re saying, “I don’t want to do that.” And the larger-scale companies were doing some more syndication, some more mergers. So who is left? The people like our company, the 1000, 1,500, 2,000 units, you’re kind of in no man’s land. We thought to ourselves, “Do we want to join them or do we want to have to fight them in our market?” because that’s what it comes down to. If they don’t buy us, they buy someone else. If they buy someone else, now we’re competing against their dollars.

So again, it’s tough, because you’ve got the emotion side, but you also got the logic side, and the logic was telling us the industry is changing just like any industry, just like Uber and bottled water and XM Radio. So we think that the industry in the next five years will be a complete metamorphosis of what it is today. I also think that Mynd Property Management Company, they are very much a technology company that’s managing assets. So they manage properties and they understand how to do that and they do it very well and efficiently… But again, just like an Uber, they think it can be a lot more streamlined than it is. Because you know as well as I do, in the industry when you talk to someone about a property management company, they’re horrible at communicating, they overcharge you. They do this, they do that. Well, when you think about it, those are all human factors that can be streamlined and possibly computerized in software, if the AI is smart enough. So we get enough money into a sector and things will change, and that’s what we are seeing, and that’s why we decided this is a smart move. Let’s keep going down this path.

Joe Fairless: Was it an unsolicited offer or were you actively looking for buyers?

Steve Rozenberg: No, it was unsolicited.

Joe Fairless: Came out of blue.

Steve Rozenberg: It came out of the blue.

Joe Fairless: You hadn’t considered selling and then you got this offer and you’re like, “Huh. Interesting.”

Steve Rozenberg: Well, what’s even a little more interesting on this whole thing, just our trajectory, we’d  been coached by a business coach for the last six years, and the business coach was part of a franchise. Well, the franchise is in about 85 countries. The founder lives in Las Vegas. As we were growing our company, he started watching us and starts talking to us about maybe scaling this on a national level and talking how we could do that, and next thing you know, we bring him in as 10% partner in our company on a large scaling model. What Mynd is doing is what he was saying that he thinks could happen with us.

The challenge though is, man, you’re grinding a lot of gears and there’s a lot of things when you’re getting money from people and venture capital and other things. If you’ve never done it, it can be a huge mountain to climb if you’ve never climbed that mountain, and when you’re dealing with other people’s money, I’m thinking, “I’m not sure that this is a path I want to take.” So when Mynd came in and approached us, and we started talking to them and saw everything that they were doing, it’s like, “Man, this is what we think we could do,” but seeing what they were doing– they have 40 developers constantly developing their own proprietary software. I’m thinking, “I wouldn’t even know how to begin to even fathom how to do this.”

Joe Fairless: Why so many of those types of roles?

Steve Rozenberg: Well, again, they are very much a software technology company. So they believe– the gentleman that founded Mynd, Doug Brien and Colin Wiel, they actually were two gentlemen that created a company about 10 years ago called Waypoint Homes, and they were purchasing homes at that time, and they collectively got up to 17,000 properties that they owned.

Joe Fairless: Wow.

Steve Rozenberg: So they’ve already done it before. They ended up going public. So they sat around and said, “We think we can do this again, but we think there’s a huge lack in the third party property management industry that has a huge void in customer service and technology, and we think we can fix it.” Because they said that when you get above about 10,000 to 20,000 properties, your biggest challenge is not having control of the software. That is your biggest restrictor, is what they explained to us.

So we realized that they’d already done it once. Now, they know the secret of the software is the key. That’s the nucleus of everything. I mean, everything spawns off of that. So their position was, which I think is very smart, they came out and said, “Listen, we are not the experts in the industry. We want to bring in the experts strategically in the industry like you guys at Empire, and some other people,” and said, “We want to hear how you guys do it, and we want to build a system essentially around that. We know how to do a lot of things, but we don’t know the third party management as well as you guys do, because you guys are in the trenches, dealing with it.” So they were very much like, “Best idea wins, but we’re willing to listen. You tell us and let’s do it.”

Joe Fairless: That’s fascinating, because you think the company that’s buying the other companies would be the expert in industry, but in reality, they are incredibly good at one area that they know is what the long-term success relies upon in order to scale, and that is, as you said, software, which if you give me a multiple-choice test or question and answer, and if software is option D, and expert in property management expert in financing, communication, contract work, I would have picked all of those over software. That’s really interesting.

Steve Rozenberg: I agree. I would have thought it’d be staffing, communications, responsiveness, but when you think about all those things, all of those things could run through a software, technically. It’s like Uber. You could never think that you’d get on your phone, which isn’t really a phone, but you get on that, you push a button, and some stranger pulls up in your driveway and says, “I’m ready to take you to XYZ.” So when you think about it, that’s really a software play. So I have learned, when we were growing our company, we really doubled down on leverage of virtual assistants, and a lot of people said they had challenges; they more had a mental block with it, and I said, “Well, let me ask you this. When you have a app, isn’t an app a form of leverage to do something faster than you were doing before? That’s what the app was created for,” and they agreed. I said, “Well, a virtual assistant is essentially the same concept. It’s an app; it’s a form of leverage.”

So what I have learned — it’s interesting, Joe… This is not something that I have been in, so this is all new to me as well. But what’s emerging in the industry is, if you think about, are things that cause less friction to the client. So when you think of Spotify, and you think of Uber, and you think of all these things, these are less frictionable things that give a better result and a better customer experience, and that’s what all of these things that are coming out, all these apps and all these programs and everything, that’s all they’re trying to do, is decrease the friction between customer and supplier.

It’s very interesting when you get into these conversations with some of these gentlemen. They’re based out of Oakland, so I’m spending some time up there, and I’m really listening and trying to be a student of how this works because, to me, it’s a whole new world. Like you said, you don’t really relate the two together, but when you think about it, it makes perfect sense that, yeah, it could be a software thing if it was smart enough, there was enough money pooled into it.

A lot of people talk about Zillow and how bad Zillow is, and Zillow is dipping their toe into the property management world, and I hear a lot of naysayers tell me they can’t do it, and I’m thinking to myself, “Are you kidding me? You throw enough money at anything and you can fix a problem.” And that’s exactly what they’re doing. They may not get it right in a year or two years. It’s just a matter of time. When you go to McDonald’s and you don’t even need to talk to someone and you push a button and you get all your food, that’s an indication of AI.

Joe Fairless: So switching gears from that to when you were coming up with a valuation with Mynd, what are some things that surprised you, either good or bad, about how they valued your company?

Steve Rozenberg: Sure. And obviously, everybody has their own thoughts and feelings of what is and isn’t included or should be included. As far as they were concerned, they were very, very upfront and very, very fair. Obviously, I can’t say what it was, but they were very fair and realistic, because we were fair and realistic. Now, there were certain things that I wouldn’t have thought it was a big deal, and there’s different ways I had learned to sell a company, in the sense of for a property management company, you can sell the company as a whole entity, or you can sell the contracts of the company. So there’s two different ways that you can sell your business. Now, if they buy the whole entity, that’s a lot more invasive, accounting wise, litigation wise to make sure that you don’t have anything pending, as opposed to a contract which is more streamlined. So that’s something that I didn’t realize.

Then there’s obviously, different payouts of how you can be paid out. Well, obviously it’s like winning the lotto; you want your money right now. It’s not as much as it would be if you stuck it out for a little bit. So I thought that was interesting.

And like I said, they were just very fair, but I will say, with that being said, you do have to remember that it is a business transaction and they have shareholders to protect and so do we. I would say that the one thing that I alluded to in the beginning, you really got to make sure that you remember that everybody’s going towards the same goal. Meaning, if you decide to dance with the company, you really have to understand that there is no emotions involved, it’s nothing personal, and sometimes the emotions will flare up and you almost have to step away and get back into negotiations, maybe a day or two later, because something that you’re hung up on in hindsight is really not; it’s more of your emotions that are dictating the conversation. That’s what I have learned from that.

Joe Fairless: What’s a specific example, in your case of that, when it happened?

Steve Rozenberg: Sure. So when we were talking about staff coming over– so for example, when staff would come over, and it was like, “Okay. Well, who’s coming over?” And there was no guarantees, but I’m like, “This guy is– he was the reason that we got to where we were. I really think we need to bring him over.” And they’re like, “We get it, we understand, but we can’t guarantee it because we don’t know his role in the bigger company.”

So a lot of the staff that comes over isn’t necessarily going to do the same role they were doing at your company. So you have to realize that they are buying the intellectual property, they’re buying everything about your company, but at the end, they really have the choice to do what they want with the team. I can’t say, “Oh, that person needs to be in that role. Wait a second, what are you doing with that?” It’s not my position anymore. You have to be okay that when you sell the company– and also, the one thing that was very tough was letting the team know and putting them at ease. Because once they find out something’s happening, you don’t want people to, all of a sudden, jump ship because now the deal doesn’t happen or even if it does happen, they’re buying the success of all the team and everything that the team has done. But of course, it’s human nature. We always think worst-case scenario. So some people, all of a sudden, start looking for jobs and doing this, and you’re like, “Hold on. Just wait up a second.” So you’re almost having to pacify people as well on that.

Joe Fairless: Any tips for that?

Steve Rozenberg: Yes, I would say definitely, before anything happens or comes out, we were very open with the team; we let them know from the beginning what was going on. We had an inner circle of leadership. We let them know, and we told them everything that we knew as we knew it. We got verification from Mynd that it would be okay, and we just wanted to make sure we kept open dialogue with everybody.

And as soon as we could know that we had a deal, we brought the team in, we said, “Here’s what’s happening. Here’s what we’re working for everyone.” So I guess, boiling that down, I would say, you have to overly communicate with the team, because the people that are working for you, they’ve got families, they’ve got livelihood, they have time invested, sometimes more time than we have invested in the company. There was many employees that were like, “Wow, I can’t believe you guys did that,” but we explained why, and they say, “Look, I understand and I’m glad you guys did, but it wasn’t what we wanted. It wasn’t what I wanted.”

And again, at some point, you have to say– and this is something that, when we were going through the transaction, we would say, “Well, we’re doing good on our own, we don’t need to sell.” And my answer always is, that could always change with a lawsuit, that could change with a law change, anything.

Again, I’m not trying to say worst-case scenario, but at some point, a bird in the hand, like if you have an apartment complex that you’re getting rid of and you go, “What? It’s making a lot of money.” But what can I do with the money that I’m making? I really thought of– and this is what I would tell people is, if you even talk to someone, that tells me mentally, there is a thought and a chance that you are willing to do something. Because if not, you wouldn’t even have taken the conversation. So if you do, think of what the opportunity cost is, of what you can do, not only with the funding that you get from the sale or whatever happens, but your time. Because that’s all you have is time.

So that’s the thing I would say, is really think about if you accept that meeting, don’t think of the worst case, think of what is the opportunity that could open doors. I’ll tell you, coming over to Mynd, for myself, has been a great experience because all of a sudden, it has opened up a lot more doors for me on the speaking panels, speaking circuits, traveling, doing exactly what I like to do, and what I think I do well at, that probably would not have opened up as quickly at Empire.

Joe Fairless: Steve, how can the Best Ever listeners learn more about what you got going at Mynd now?

Steve Rozenberg: Sure. They can find me on Instagram – @rozenbergsteve, or Facebook, Steven Rozenberg. They can also go to our website at Mynd. It’s Mynd.co, so it’s just co. If they google me, they’ll find a lot of stuff. I do a lot of speaking, traveling, and a lot of education. I’m all about educating investors,. Again, if anybody wants to know more, I’m happy to chat with them, but it was a great experience. I’m really glad I did, and I’m glad I’m able to share it with people that it wasn’t a doom and gloom, horrible, they ripped me off kind of story. Really, it was a fair situation that I think is worth anyone exploring if they own a business.

Joe Fairless: I love how you got into, first, be aware of the industry landscape, where it’s headed, what are the industry trends. So first, we need to be aware that. And this is applicable not only to selling a company, but also individual deals too, because you could talk about the market, the sub-market, the job dynamic within that sub-market… So first, just being aware of the business that you’re in and the levers that need to be pulled in order for you to continue to have success, and what happens if they’re no longer being pulled or what happens if they go to the other direction.

And then, if they are going in the right direction, then you’ll be able to negotiate from a position of strength, any opportunities that come your way, and then you can capitalize on those opportunities and then exit out successfully, and then move on to some other things or other deals if it’s a real estate transaction. So I love the thought process, applicable not only to selling your business, but also individual deals. I hope you have a best ever day, Steve, and we’ll talk to you again soon.

Steve Rozenberg: Thanks, Joe. See ya.

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