In Episode 5 of Diners and Deals, host Seth Deutsch sits down with Steve Carroll, the dynamic co-founder and CEO of Kelso Industries. What started as an idea in 2021 has quickly grown into a billion-dollar powerhouse in the HVAC and MEP space, fueled by strategic acquisitions and a relentless focus on partnerships, culture, and vision.
Steve shares his incredible journey from blue-collar beginnings and a corporate career at Walmart to founding Kelso Industries with his childhood friend. Together, they’ve completed 19 acquisitions (and counting!), proving that bold dreams and disciplined execution can lead to extraordinary outcomes.
This episode offers invaluable insights into building a thriving business in one of today’s hottest industries. From the challenges of walking away from a deal to the importance of selecting the right partners, Steve’s story is a testament to the power of grit, relationships, and strategic thinking.
Here’s what you’ll learn in this episode:
✅ How to scale a business through acquisitions while staying true to your core values
✅ The role of relationships and culture in long-term success
✅ Why HVAC and MEP are among the most exciting growth industries today
Whether you’re a seasoned entrepreneur, an aspiring business owner, or simply curious about what it takes to build something remarkable, this episode is a must-listen.
🎧 Tune in Now! Catch the full episode on Spotify below, and hear how Steve Carroll turned big ideas into billion-dollar results.
Prefer video? Watch the full conversation on our YouTube channel here to see Seth and Steve dive deep into the strategies, lessons, and insights that built Kelso Industries into a billion-dollar powerhouse.
🚀 Don’t Miss a Beat!
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Episode Transcript
Seth Deutsch: Steve Carroll, welcome to the Diners and Deals podcast. How are you doing, man?
Steve Carroll: I’m doing great. Thanks for having me on, Seth.
Seth Deutsch: Thanks for agreeing to do this. When did we meet? Was it, it’s got to be two years, year and a half ago.
Steve Carroll: Yeah, yeah. It was on the beloved LinkedIn.
Seth Deutsch: It was on LinkedIn, which I love. I’m on a number of boards that like that whole thing started with someone like you reaching out to me saying hey, like you seem like a real person. Would you mind like chatting? I’m like, sure, dude, let’s talk. It’s just a beautiful thing. For as much as I now hate all the spam that I get on LinkedIn, it is amazing that just from that platform, we’ve developed such a nice friendship. It’s really cool.
Steve Carroll: LinkedIn’s been huge for me over the years. At various stages of my career, it’s helped me in so many different ways beyond Facebook and Instagram and all those other places. We could go on and on about LinkedIn. It’s been huge for me.
Seth Deutsch: That’s awesome. Well, I appreciate you doing this. Now, we are not- we started the Diners and Deals podcast in a diner, at the S&G Diner, 3000 North Lincoln Avenue in Chicago. It’s my favorite place, one of my favorite places in the world, and I just meet my buddies there all the time for breakfast, and we just chit-chat like we’re going to chit-chat here today. Unfortunately, my equipment is not so sophisticated, and so we were picking up- we were kind of wanting to do it like Jerry Seinfeld, Comedians in Cars Getting Coffee, but private equity style. And so, anyway, my buddy Reid Lappin at Vokal said, hey, why don’t you just use like our den, basically, which has been great, but I really wanted to do this with you, so I came out here to Phoenix, and here we are, we’re at whatever office building we’re in, and this is just fine.
Steve Carroll: This is great. We should do this again, I love this place.
Seth Deutsch: I agree. Well, let’s see how this one goes, and if this is fun, and you’ll come back, then we’ll do it again. Now when did you found Kelso Industries?
Steve Carroll: Officially, it was May of 2021, but that was many, many years leading up to getting that started. So it’s almost not fair to say that it was May of 2021. It was just when the documents were dialed and our first acquisition closed. So, in my mind, it was many years before that, but in reality, it was just a little over three, three and a half years ago.
Seth Deutsch: Now we’re going to get into a whole lot of stuff, but here we are three and a half years later. What is the size of the company now?
Steve Carroll: We are approaching, by the end of this year, on a pro forma basis, we’re going to hit about a billion this year.
Seth Deutsch: It’s just, it’s amazing. Did you ever dream that you would be running a billion dollar company?
Steve Carroll: I would tell people a few years ago that we were going to hit a billion, and they would laugh, including my sponsor and my partner and other folks, and they would say, sure, sure, Steve, sure. And a lot of grind, a lot of grit, a lot of focus on relationships and partnerships and finding the right people, and here we are, we’re on the doorstep of achieving our goal that many people said we’d never get to.
Seth Deutsch: I want to get to that and whether or not, to the extent that was a motivator or not for you. Was it? The doubters?
Steve Carroll: Yeah, absolutely.
Seth Deutsch: Talk more, let’s talk about it now.
Steve Carroll: Well, I grew up in a small town and my family had a little bit of means and we were farmers. My dad had a job as a lumber trader, but no one was around to take care of the, this was a tree farm. So it’s not milking cows, but there’s still a lot of hard work on this thing to keep these plants alive. And so, I grew up in a low, lower means community and did not have major expectations but had a lot of goals, just didn’t know what you could achieve in life.
Seth Deutsch: When did those goals first start sparking in you? When did you first start to, when do you remember recognizing that you had this type of drive, ambition?
Steve Carroll: In middle school, I’d always had good grades, but I would selectively have good grades.
Seth Deutsch: I know someone like that.
Steve Carroll: You know someone like that?
Seth Deutsch: I do, actually I know two people like that.
Steve Carroll: Well, my dad recognized that in me and said, hey, why don’t you just try to always get good grades, and if you get 100% good grades, I’ll pay you. And I’m like, wait, you’re going to give me this money that I so desperately want to buy basketball cards or a video game or pair of Michael Jordan shoes, which I never had enough to buy, but I wanted that money so bad that I was willing to do whatever it took. And that’s around the moment in life where I realized there’s- you can earn enough to buy a TV. I bought my TV when I was eight because I wanted to play Nintendo without my sister bothering me in the same room, but I had to save up for it, so that my parents didn’t buy it for me. So it was kind of a build. And even now, my career and my goals are still a build. Because I feel, to me, that’s what it’s all about, is the build and the growth. To me, that’s way more fun than anything else. Like the journey of whatever it is is way more fun than actually the end point. And so I just love always putting that out there. So in high school, I had some goals to be at a certain level financially and have certain this or that. And I achieved those goals a few years ago. And this is not the end point, so let’s keep going and let’s keep putting those out there. When I was at Walmart, Walmart makes you think big. If you want to make an impact there, you have to think really, really big. Otherwise, no one cares. So, I brought that here.
Seth Deutsch: Moving the needle, I realized the same thing at Aecom. Because when I joined, the company was 8 billion. When I left, I had a little bit of a contribution to it, to that growth, but we were a $20 billion enterprise. And the bigger you get, to move the needle, it requires really big thinking, really big action. And yeah, anyway, but let’s go back. So, how did you end up at Walmart? What was that journey?
Steve Carroll: So, I did the blue collar lifestyle. I thought I might be in some kind of landscaping nursery business. And then my parents had some hard times, and the nursery was no longer a part of our family any longer and caused a little bit of a scare for me personally and for my whole family.
Seth Deutsch: How many brothers and sisters?
Steve Carroll: I have a brother and a sister. And kind of thinking that there was going to be this safety net almost of, oh, I got this. There was a pivot. And that also sparked some of my internal desire to make sure I’ve got something I’m working towards because you never know what could happen. So, blue collar life there, went to college, and I just did not see myself sitting at a desk doing finance stuff, which is funny because that’s mostly what I do now. So, at a younger age, I thought the thing that would be the most exciting would be to continue on a blue collar lifestyle, so I did construction management in school. I did that for a number of years. Saw there’s tons of problems out there in construction. I mean, there still are, but just tons of opportunity for improvement and growth, technology. I mean, I was getting RFIs via fax when I joined the industry. And eventually realized I needed to accelerate my learning and decided I needed to go to grad school. And after grad school, that’s where I realized I need to find the biggest company I can find to go learn from and get an opportunity to see what big, big, big looks like. And that’s why I ended up at Walmart and it shaped a lot of why I wasn’t scared to say Kelso was going to get to a billion.
Seth Deutsch: How long did you stay at Walmart? And was Kelso what you launched after leaving?
Steve Carroll: I was at- yes. I was at Walmart Corporate for seven years. And I had two of my three kids, yeah, I had two of my three kids while I was there. The other kid I had during grad school. I’m just very-
Seth Deutsch: Why not?
Steve Carroll: Yeah, like, why not, I guess. Like, we don’t have any money, let’s figure it out. So, Walmart to me, as crazy as this sounds, I thought I’d only be there one or two years. I had a little bit of entrepreneurial success with helping some friends with some real estate work, and I had enough that I could have not been at Walmart. I could have gone out and done something probably in the real estate space. And just, there’s so much at Walmart to be excited about, the changes and what’s going on with digital, and I just had to be a part of it. And I kept finding myself, I’ve interviewed other companies or whatever, and I’d come back home and I’d be like, that place isn’t better than here. I love what we’re doing. And I always found myself in these exciting segments, building new P&Ls from zero in many cases, and used that time at night to work on many entrepreneurial opportunities where I mostly just flushed money down the toilet.
Seth Deutsch: That’s good learning, too. Now, there’s got to be something else about Walmart too and that environment in terms of the talent that you were surrounded by as well. Is that another part of the compounding that kept you?
Steve Carroll: Yeah, my eyes, I feel, in life are continually opened because I’m just super curious. I love hearing about other people and what they’re passionate about and what they’ve done and where they’re going. And I mean, the CEO for eBay used to be a leader that I worked around. He was pretty high up. But the CEO from Walgreens, I mean, there’s like many, many very high-level C executives that are out there in Fortune 500 companies that have come in through Walmart. The chief marketing officer for Ford. I mean, all sorts of folks I got to work with and learn from and leadership training and development and team building and strategy structure, people, all the stuff that we use in Kelso now. The day one mentality, Jeff Bezos. I had to study them a lot, being in retail, and we talk about day one a lot in Kelso, because it is day one. We’re trying to build a 20 plus billion dollar business, not a one billion dollar business, so we have a lot of work to do, and today’s still day one. So, Walmart really formed much of my vision and thinking, even though it’s a different industry.
Seth Deutsch: And so, what- given all of that, and you said you started, you gave birth officially to Kelso in 2021, but it started to gestate in you some time before that. What was the impetus for you that said it’s time to break out on my own and do this, and did that start as Kelso? Were there a series of ideas? Let’s talk about that process that led you to to Kelso. And also, as that was crystallizing, what was the, who was the team that you brought around you to help manifest that?
Steve Carroll: Yeah, I’m trying not to bore the audience too much, but hopefully there’s some people out there that are watching that are in a corporate job saying, can I be an entrepreneur? Can I be a leader in a private equity backed company? Can I go to something that’s next? And my response is absolutely you can, but you’ve got to network and grind your way to it. Nobody’s going to give it to you. And in my case, that’s the way it was. So I tried. I flipped a house in 2015. I bought it online on an auction, and I drove up there, changed the outlets myself, changed the water heater myself, did all the work. I think I made my investors a 70% IRR or something like that. But it was not scalable. So I tried that, and we did good. In fact, my now partner was one of my investors. I realized that was cool, but how am I going to do this a thousand times or a hundred times or even five times? It’s just not scalable. So, then I went to, my second child was born, and I started Googling how to make more money. I was just curious, like what do people have out there? And then if you do that, watch out because there are thousands of internet personalities and internet cartoons and characters that will be all over you, following you with ads, and it’s very confusing. And I probably wasted three years going down that path because I thought, I’ll keep going down this corporate career path, and I will do something on the side. I will do something in affiliate marketing, I’ll do something in content and SEO, I’ll do something in agency, I’ll do something in e-commerce and Amazon FBA, and I did all of that. And I have a lot of those skills, and I’ve brought a lot of those skills to what we’re doing now, but it didn’t make me a lot of money. I lost. I did a lot of revenue, but I didn’t make any money. So I would even say to folks, I would even suggest to people, don’t even try to do that stuff now. It’s hard to compete against Google and Amazon and Facebook and Instagram and all those things. And I’m just so done with that. But that laid the next step for me of, hey, I can do something else. And that’s when I realized, I don’t…
Seth Deutsch: You knew that you could build.
Steve Carroll: I knew I could build something, because I had built some awesome systems. I built some awesome automation systems. I learned how to use these tools that I would have never touched otherwise, ever. And in fact, I think it even helped me in my job at Walmart because I was in marketing and advertising, and I had P&L responsibility with my team and we had innovation that helped me. So to me, I always think about how can I benefit from this and how can I benefit the company that I’m working with too with my innovation and trying new things. But that’s also when I realized I’ll never be able to win against Amazon or Walmart or any of these other folks. So where can I go that Amazon can’t easily compete with me or someone in some other part of the world times a thousand people compete with me for this thing I’m doing? And that’s where I got into what we’re doing now, more of a blue collar world. Amazon is not going to be able to send a technician that they employ very easily out to do HVAC work, plumbing work, or electrical work. So, I went back to my blue collar works, my construction experience to form the strategy in about 2018, 2019, and that’s when I shifted my energy, my personal energy, nights and weekends, towards building Kelso.
Seth Deutsch: Got it. And when you envisioned Kelso, what were the fundamental tenets of what you wanted to build? And then knowing that, you and I have talked about this, like I view what you are building as the next generation of comfort systems. That’s the closest proxy that I can think of, and that is such a well run- it’s an incredible company. No one has effectively emulated or built upon what they’ve done, and to me, that’s what you are in the first inning, still, even at a billion of revenue, of doing. But that’s going to take a team, that’s going to take a lot of capital. But as you were conceptualizing Kelso Industries, what was it that you were picturing that you were trying to build, and then what did you have to bring together to get it off the ground?
Steve Carroll: I wish I could take credit for the vision that we have now early on. There’s somewhat of a, wow, we didn’t realize it would quite get to this point. I mean, I think our, depending on the conservative or the aggressive look, the five year and the eight year goal we hit two years ago, when we initially set up our deal with our partners. So the yardstick has continued to move out as we’ve hit these goals and realized early on there was some interesting discussions with my partners and I about what should the name of the business be. It was going to be Kelso, but Kelso what? Is it going to be Kelso HVAC, Kelso Heating and Cooling, Kelso this, Kelso that.
Seth Deutsch: And why Kelso?
Steve Carroll: Oh, thank you. Kelso is the name of the elementary school that my business partner and I met at in fourth grade, Kelso Elementary School in Sandy, Oregon, where we grew up. So, our roots and the relationship and the history of who we are, really, this isn’t just some private equity roll-up. This is me and my friend literally grinding in our careers to be ready to do this at this point and having the ideas and the collective experience to be where we’re at. That’s why we named it Kelso, because that’s where our relationship started.
Seth Deutsch: It’s beautiful, it really is.
Steve Carroll: It’s fun. It’s fun too, because we also started Kelso because we wanted to pick one by one every person we worked with because we had both worked with people we didn’t love working with, and who cares if you make a bunch of money or who cares if you have even a job if you have to work with jerks all day long. So, to us, Kelso was the opportunity to select each person we deal with every day and have the outcome, whatever it may be, only be dependent on having the best people around us.
Seth Deutsch: I know you feel that way, and it’s interesting, if I could rewind the tape, which we’ll be able to, it was really interesting, because you said something earlier, and I actually think it’s more than that, and you just said it, it’s about the journey. And there’s this, it’s a very accessible book on Buddhism that I love called Big Panda and Tiny Dragon. And they have these conversations and these vignettes. And I can’t remember if it’s Big Panda or Tiny Dragon, but one asks the other, what’s more important, the journey or the destination? And the response is the people, the company, that you’re with. And so, for you, and I think for the best companies out there, it’s the journey, and it’s the people that are with you on that journey. I think it’s that combination for you.
Steve Carroll: Could not agree more. At the end of the day, who cares if we build some big, huge business if we don’t like who we work with? I would be doing something else. I would have already moved on. And we set it up to where my partner and I, we’re driving this thing, so we’re talking, I just missed a call from him.
Seth Deutsch: Tell him I said what’s up.
Steve Carroll: I will. We’re talking multiple times a day. We’re meeting our future partners and saying, are these people going to be in a room with everybody else and is everyone else going to say, yes, they fit with us. That’s what I’m looking for. And there’s magic in that. There’s excitement. There’s something that you can build upon where if it’s just a job, if it’s just money, that will fade. I’ll never purposely try to let a partner down. I will run through freaking brick walls because I care more about the relationship than the money in the long run. And that’s just, I think that’s part of the magic of what I think we’re doing here. And that’s what I would encourage any listener in the audience to think about. Yes, if you want to go do private equity, great. If you want to go be a leader for a private equity firm, judge the characters of those around you. Potentially you might be around more than the amount of money they’re flashing at you. The amount of money they’re flashing at you may actually be worse for you in the short or the long term because they will own you at that point, and your happiness is going to be at risk. So, we’ve really focused on that in Kelso, and I’ve found a lot of companies out there in our industry in the MEP space that are, they live those. They live those core values. And I think that’s part of the reason why we’re having so much success is we’re not doing anything special. We’re just very selective for the right people.
Seth Deutsch: Let’s talk about that in terms of finding the right people. Now, one of the things that I kind of, I have some rules of thumb, you know this, I teach classes on this, and this notion of selectivity, culture, these are the most important things. Who you decide to partner with, it is the most important decision. These things cannot be really undone.
Steve Carroll: You’re married.
Seth Deutsch: You are absolutely. And well, you were married in kind of what I consider the very old school sense. This is not one that can be annulled or end in divorce.
Steve Carroll: Correct. You will be stuck together.
Seth Deutsch: Yes, you will be together. And so, I talk to people about building the organizational capacity to have the selectivity. And so, at the beginning, it can take, you might have to meet with 60 targets to find the one, or 30 to find the one, or 20 to find the one. And then in the lower mid-market, this is something that a lot of people don’t talk about, companies under 50 million in revenue, only one of three LOIs goes to close. Something might happen along the way. I’m curious if this is part of what, this focus on the right people, the right platform, the right businesses, from the time you had the conception to really finding those fundamental building blocks. Now, I’m curious to know what that took, and then I think what happens, and I want to hear this part two of my long and winding question, is I think that what happens is as you build that and as you find those right players, especially in industries like this, they have peer groups, and they are then able to attract their brethren to speak. And so, you’re able to pick up velocity based off of picking the right people and being good to your word.
Steve Carroll: I’ll hit that first and then I’ll go back to, I think, your first question. We just announced, won’t say the date because I don’t know when this will air, but we just announced a recent acquisition that was an awesome business. So quite a large business actually. A referral from one of our other partners. Someone that they had worked together with for a number of years successfully, partners enjoyed spending time with each other before I was even in the picture. And so that does play into the success because we’re not just focused about the money. And the people that are focused on the money only tend to have a worse outcome long-term relating with other people, growing, we call it cross-sell. Cross-selling with the other teams. That all is so much easier when it’s somebody that’s already been doing that and is in that mindset of collaboration and cross-sell with the other teams. So we learned, going back to your other point, we learned, so when we first started, it was me and my partner Steve Nicholson. He came from his career in more of an investment banking private equity career path, moved around the country. I came, mentioned a little bit about my career. We were just trying to get a deal done. And we were trying to do whatever it took to get a deal done. So we had the SBA thing all dialed in. We had a previous deal, like I say, 2021 wasn’t really the beginning. It was on paper. But the year before, we had a deal that I was like this close to having done and had some people problems right before it closed. Go figure. Somebody quit, the other person wanted a massive raise. This was not a big business. Killed the deal. I just couldn’t-
Seth Deutsch: Good for you. I want to, hold on, let’s go back. I want to just back up. I want everyone to hear, they could rewind it, but I want them to hear this again. There are certain things that you fundamentally never compromise on. People and culture being number one. You had been working for two, three years on this foundational deal. You have this under LOI. You have the financing set up.
Steve Carroll: All was done. I had already paid the fee to the bank for the SBA loan.
Seth Deutsch: And some things showed up at the end and you listened to your heart and your gut. That takes massive discipline and courage. That had to be so hard.
Steve Carroll: Oh my gosh. I’m like getting goose bumps just thinking about this right now. We’ve had major challenges building Kelso. It’s not been all roses.
Seth Deutsch: Everyone does, of course not.
Steve Carroll: There’s been many moments where things could have crashed. Many moments, not recently, but many moments early on where I may be bankrupt or I might be working a job again. That moment for that first deal, it was so hard because it was a smaller business. The owner was trying to leave. The general manager, who we had agreed to was going to have some equity after the deal was done, had a tiff with the previous owner during diligence about something that was going on at that time and walked out and never came back. And he was going to be the license holder, he was going to be the sales manager, the ops manager. This was a smaller business. And so, we got all the way to days away from closing. And my partner, Steve Nicholson, I’ll give him all the credit, he said, Steve, I will back you, because he had a little more capital at that time. He said, I’ll back you. You decide, are we doing it or are we not doing it? You decide. So, it was 100% on me to make that decision.
Seth Deutsch: I’ve been in that seat, and I’ve made the wrong call. And I remember viscerally making that wrong call, but it’s what’s made me so much better. And I think the issue is, I don’t mean to- I didn’t have that trust that you had with Steve to really search myself, to not be afraid of the right answer. And I think your relationship enabled you to trust in what he was saying to do the right thing.
Steve Carroll: I agree. I think you need to, if you’re going to go out and make this change, you have to find someone else you trust to work with. You could do it on your own to a degree, and for me that wouldn’t have been possible because I’m a team player. I play team sports. I played tennis in high school, but I played doubles. I love working with other people. That’s way more fun to me than doing something on my own. So for me that wasn’t an option. Some people could obviously do better than that. But for me, I needed to have that right person. And I think if you can find that person, it’s huge. Because he did, he trusted in me. And we made that decision. I remember, it was September 2020. My son, who’s my third child, was born in March of 2020. It was also during COVID. But I remember thinking, man, I’ve just wasted not only the months of this deal, but I’ve wasted the energy leading up to this and probably the last two years I felt like I had wasted. And there are going to be people out there in the audience, I imagine, who are going to be at that moment. I have friends I’ve been helping, guiding, giving advice to for years that I know are going through that when a deal doesn’t go through. You have to pay for all the broken deal fees personally. The lawyer, the Q of E, the SBA loan, if you don’t close, that’s in the garbage and it freaking sucks. But I’m here to say you’re better off if it’s for sure not the deal, make a decision and move on and learn from it. And that’s what we did. We at that point, it happened in September, I licked my wounds for like a month. I remember going to my partner Steve and saying, dude, we can’t buy a little business. We need to buy the biggest business we could possibly buy with an SBA loan. And why don’t you partner with me on that and I’ll go find it. With my own money, I’ll hop on planes, nights and weekends, and I’ll do it.
Seth Deutsch: I want to go back to one other thing. That founder, when you broke up, I assume that he or she had some words for you.
Steve Carroll: Yeah, he was not happy.
Seth Deutsch: How did you internalize that? This is an important- these types of reps, these are just things that we go through, because we’re going to break up deals. Sellers are going to break up deals, buyers are going to break up deals, like this is going to happen. But there are many people that have never lived through that. Can you talk about those emotional ripples you may or may not have felt at that time?
Steve Carroll: Yeah, I mean, you’re probably going to look for a deal where you live. It’s going to be easier, a lot of people are going to start that way, and you’re going to know some of the same people, and you’re going to have a bank that knows this person, and you’re going to have the broker that knows someone. It’s tough. I think you can get stifled with it, and I think you can use it as an excuse to say I’m not going to go buy a business, I’m not going to make the jump. But I think that’s the wrong thing to do. I think you’ve got to realize it’s just business. In the moment, it’s hard.
Seth Deutsch: With hindsight, it gets so much better, especially once you find the right one. Puts it all into perspective.
Steve Carroll: Yeah, because later, you have all that knowledge now, if you close on that bad deal, you’re stuck. You probably put most of your resources into that. You’re not going to be able to even go look for other deals. You don’t even have the ability to run the business, probably, because it’s going to need you. So for me, it was an opportunity, now, I can look at it and say that was an opportunity for me to further expand on all the knowledge that I gained all the way up to that point. Because you learn a ton. When you go into an industry, this is a whole other topic, you have to pick an industry. You can’t do a hundred different diligences on different industries. You’re going to drive yourself insane. So, for the folks in-
Seth Deutsch: You’ll never have relative comparativity. You’ll never be able to understand what good really is. You’ll never be able to evaluate these people versus other people, these companies. Like, you have to stay very focused in that niche. Keep going, you were going to say.
Steve Carroll: I tried to do a ton of different industries, and that’s part of the reason why it took me so long. I was going to do this, and I was going to do that, and I have a friend that made money in this, this and that and this and that. It wasn’t until I finally said, hey, I’m only doing HVAC, you want in? And it was like, yeah, I want in, let’s do it. And I would go visit, I would get on airplanes with my own money and fly around and meet these different companies and started to see, ooh, that’s, I like that. Don’t like that, that’s not a good system. And I started to build my own scorecard. I even had a spreadsheet that we had started developing.
Seth Deutsch: I’m sure you did.
Steve Carroll: Scored everything. You can’t diligence everything, but especially when you’re just getting started, you’re better off in your favor if you can do that. So, after that deal happened, yes, it was hard with the owner. It was hard with everyone. Because everyone’s going to make money on that. The bank, that person was going to get an origination fee. The broker was going to make some money. The guy was going to get a paycheck. So yeah, I let a lot of people down in that moment. I had to lick my wounds for a month. You probably need to give yourself a little bit of a break for a minute. Just know you can’t do everything. Take a break. That’s when I hit it hard, nights and weekends, on the airplane, going out, meeting these new groups, and that’s when I met the group in Arizona, that was a little bit of a level above everything else I had seen. They had a shop, they had all the equipment, they had a CAD connected to a plasma table, they had project managers, they had estimators, they had form- all these things where I’m like, wait a minute, this company has things that I’ve never seen before. I wasn’t getting shots at the size of these businesses because I’m a nobody. Like, you don’t get shots in bigger deals.
Seth Deutsch: And getting your first one done is the hardest. You’ve got to convince that owner, that family, to come along, be the first to trust you and come along with you on that journey.
Steve Carroll: It was a thousand times harder than it is now, for a smaller business. For a much smaller business. And this is also where we learned, as we made the mistakes, what our first core value is at Kelso, which is partnership. This first deal that we did, there was no partnership. The owners wanted to be gone. If you start that way, just know they’re not partnering with you.
Seth Deutsch: No, they’re not. It’s a transaction.
Steve Carroll: It’s a transaction. They’re trying to milk as much cash as they possibly can out of this business, and you are on your own with your resources to battle against that. They’re going to act in their best self-interest; we learned that in economics. Everyone works in their best self-interest. If you don’t form a partnership, you’re forming a transaction that will, everyone’s going to try to get the most for themselves in that moment.
Seth Deutsch: That’s right. I’ve got a kind of rule of thumb in buy and builds, which is the first five or six deals, no retiring founders, massive amounts of rollover equity, highly structured. You have to build with the foundation of partnership. I mean, sometimes you don’t have a choice in that to get a platform going, sometimes these are the trade-offs that you have to make. But ideally, that’s what you’re looking for, but sometimes to get it going, and you just have to know you are stepping in to run it. You own it. No one’s coming to get you. No one’s coming to save you. And the seller always has the advantage, always. They know everything. As much as you can diligence it, they have the benefit of true knowledge.
Steve Carroll: There’s so many ways that you can get yourself into trouble buying a blue collar business. And you’re right, I think the best way to do it is a partnership.
Seth Deutsch: Which you know, but sometimes to get it going, you got to get it going.
Steve Carroll: I couldn’t convince anyone to do a partnership with me when I first started. I was coming out of a corporate job, I had schools and degrees, but who cares about that? The blue collar community says, show me the money, show me what you’ve done. Put me in touch with someone that you’ve done this with. And I’m like, I can get an SBA loan.
Seth Deutsch: That’s right, that’s right. Now this is what you got to start with. And so you guys closed that one, and?
Steve Carroll: Yeah, so we learned, this is again another learning, we learned that a lot of brokers are not super sophisticated. So, this business was marketed at a particular price point, sans working capital. And this is a B2B HVAC company with general contractors that pay you on average 80, 90 days, 70 days, 60 days, whatever. Maybe a good payment term is 35 or 40 days. I mean that’s over 10%.
Seth Deutsch: Especially if you’re working for GCs.
Steve Carroll: Yes, exactly. So I knew it was tough because I worked for GCs. I knew it was tough on the subs. I knew the payment things were difficult. But until you’re in it, until you’re studying the industry, you don’t really understand what the real cash impact is on these companies. And so, we realized through this process that we needed way more working capital. They were trying to tell us we could do this with a fraction of the working capital that the business currently has. That business has much more than they thought we needed. They also didn’t understand what working capital is. That’s a whole finance discussion.
Seth Deutsch: We could get into, oh my gosh…hours, hours.
Steve Carroll: We could talk for hours. We have to talk about it for hours in our business still. It’s a very big deal. So this first business didn’t have any working capital and it was priced maxed out at the SBA loan level. So enter private equity for us. It started at that point. We already had the deal, we were working on closing it, but we didn’t have all the capital. So that’s where private equity entered for us, and I could talk for days about how awesome our sponsor is, our first sponsor. We’ve had to grow a little bit from there, but our first sponsor, they’re a group out of Salt Lake called Peterson Partners, I have to give them a shout out. They’re awesome. I don’t know if you’ve interacted with them at all over the years, but they have great people there. They have a partnership core value, too. They focus on people. They’ve been amazing for us. Couldn’t say enough good things about them. My partner there, his name’s Spencer Clawson. We have regular communication with him, and he’s been awesome. So, anybody that’s trying to go out there and start on your own, it could be a good place to go build a relationship.
Seth Deutsch: Yeah, agreed. So, I want to pivot for a minute. And then, because we could go on for hours. And we have pickleball to play. We have dinner. We have a lot of stuff. We have a long date today. This is like a fantastic date that we’re having. But we’ll have you back again. I want to talk about building the team, building the core functions. Did I hear you say correctly, it’s now 18 acquisitions after three and a half years?
Steve Carroll: 19, and we’re adding our 20th.
Seth Deutsch: Amazing. It’s just the velocity is amazing. Let’s talk about your CFO. Let’s talk about office of the CFO. Let’s talk about what it takes to find the right running mate in that seat and the iterations of building out the finance and accounting and FP&A function.
Steve Carroll: This could also be hours, this conversation. Early on, I was operations, my partner was finance. His management style was delegation, and the problem was we didn’t have a lot of people to delegate to. So, you get into a little bit of trouble pretty easily with people with no accounting degrees, no PoC…
Seth Deutsch: Percentage of completion for those that don’t know.
Steve Carroll: Yeah, thank you for clarifying that. If you’re going to get into small business ownership, you better figure that stuff out – payroll, accounts payable, accounts receivable, terms that you learn in accounting 210 when you’re just starting in school and you’re undergrad. But these are the lifeblood of the business. And it’s not a press the button and the job gets done kind of a thing. And when you’re at Walmart or big companies, you don’t even get exposed to it. Because there’s armies of people working on this stuff, unless that’s what you did there. And if you did, you only deal with a sliver of it. So, for me, this was a big, big learning curve, managing working capital, managing cash, weekly payroll. Most blue collar businesses are weekly. Some of them are twice a month, and we have both in our company. But it’s a change. It’s a change, and you need to get trained up on it very quickly. And I was not. I had to learn a lot. So was my partner. He didn’t know about this stuff. He was in private equity, but at a different level. So early on, we didn’t invest like I think we should have early on in the right finance management. We had a little bit of help from a third party, but you need more than just a couple hours a month or even a week from someone very competent that does know what percentage of completion accounting is. WIP accounting, WIP management, all these things are very, very big deals. So we stumbled through this. We had hired a few people along the way, and I wish all of them could have worked out. But we had to make some changes. In fact, one guy, never going to forget this, decided that he didn’t want to work with us anymore on a Wednesday. I was in Utah. I got the email saying, I don’t want to work with you guys anymore. I’m leaving. He was our VP of finance for a private equity backed company bailed on me, no two weeks, no discussion, wouldn’t pick up the phone when I tried calling him, wouldn’t text back, literally nothing. And this is someone that’s still out there working in the world as a finance professional. So, we were lucky enough to land on some better people shortly thereafter, and things started to stabilize. But finance is a huge deal in small business ownership, in roll-ups and private equity, not just for reporting to private equity. I’m just talking about operating.
Seth Deutsch: Operating, managing cash, managing projects, managing payroll. Just especially in blue collar, especially again when you’re paying subs, you’re paying your own people every week, especially when you’re not working at the beginning direct for owner and you’re working for, you’re working under general contractors. And it’s an area that it has to, you almost have to over invest in that piece of the infrastructure. If you were to go back and do it all over again, over invest in that piece of the team, that piece of the operational and infrastructure and grow into it because having the visibility, the transparency takes out so much fear and anxiety. And so much time. You’re constantly chasing yourself when it’s not right, and second-guessing everything. That frictional cost is massive, I think.
Steve Carroll: It is, you’re totally right. We under-invested in it early on, and I think that’s a bit of a mistake. You have to be careful to run your business and survive. But would you rather grow or invest in finance early on? I would say invest in finance early on is probably a better answer than trying to grow. We made that mistake early on before we had done a lot of acquisitions. We didn’t get our second acquisition done until a year after we started. We spent an entire year looking for another acquisition and just surviving, getting through the mess of getting a system in place and a team in place that was a partner level.
Seth Deutsch: I totally understand it. I’ve been through it. I’m going through it. I completely understand. Once you get it right though, then you can start to accelerate.
Steve Carroll: And that is so true. I look at our team now, our finance team now, it’s huge compared to where we were. We were like me and my partner, Steve Nicholson. That was it. I was operations and he was finance. We were that way for over a year, year and a half probably. Having the right finance team has been huge. I couldn’t give enough kudos to our current finance team, our CFO, my partners worked with him for many, many years before. And so, again, partnership, relationships. That’s huge. So he made a jump to come over to Kelso a year ago. It’s a risk. We’re a new thing. We haven’t been around that long. Things were still kind of starting to settle more a year ago around here.
Seth Deutsch: Still in the cosmic ooze.
Steve Carroll: Still in the cosmic ooze of a lot of acquisitions and how are we going to manage all of that. So for him to come over, he wouldn’t have done it if he didn’t have a relationship with my partner. Just wouldn’t happen. So never burn bridges. Always focus on the long-term thinking with your relationships, with people you work with, with third parties. You never know who might be your boss, who might own your company someday, who may be someone that can help you or refer you to something. So I will give those two credit for that for sure. Our finance team now has a tremendous amount of responsibility over cash, a lot going through our business at this size. Payroll is very, it’s a big deal. Managing working capital, managing capital for acquisitions, getting reporting done, just getting whips done every month is a big deal. So our finance team is awesome. Early on, I was hand selecting and recruiting people, and many of them worked, but a couple of them that didn’t, we’ve kind of got past that and now we’re recruiting people, and the people on our team are definitely world class. Much more fun to be at this stage of the process. I can brag about them now. A couple of years ago, it was tough. A few years ago, I couldn’t have had this meeting.
Seth Deutsch: I understand, and you’ve earned your way to that, to this point. Listen, this has been, we could go on and on forever. I hope you come back, and we just talk about more stuff. But it’s important, I think, to have balance. I want to go have some fun with you today.
Steve Carroll: Yeah, man. Time’s flying.
Seth Deutsch: Time is flying. So as we’re leaving, is there anything else you want to impart to the audience, to the yous out there that are, let’s talk about two different people, the yous out there that are thinking about leaving the Walmart or wherever they are, and the yous out there that have just put together that, they’ve just done their platform acquisition, they found out what they really have, and they are having that existential moment of what the hell did I get myself into? You’ve had that feeling. Can you talk to both of these folks for some final thoughts?
Steve Carroll: Absolutely. I’m very passionate about this. Like you, I’m just trying to give back, and I’m mentoring a handful of people at any given time, just with phone calls and texts, and, hey, you’re at this point, you should try this. If anybody ever wants to reach out, I’d be happy to offer unsolicited advice just to help out.
Seth Deutsch: I know you will.
Steve Carroll: In the beginning, you just have to pound through it. That person who’s just starting, it will not happen if you don’t figure out a way to pound through it. Nobody’s going to make it easy for you to be where you’re at. You may need to work a day job, and you may need to work 40 hours a week outside of your day job, somehow, to make it happen. And pay for your own airplanes, and pay for your own meals, and try to convince people with limited resources that you’re the guy. But I think it’s a worthy use of your time. I think you will be fulfilled in a way that you can’t be fulfilled in a big corporation. And you can materially improve and impact the lives of the people whom you will oversee if you have the right core values. Because a lot of these people are stuck in a small business with no future. And you should push through it if you have the right motives, yes, you should try to make money, but you should have the right motives to help people. And you push through it because you believe that those two things are better for you to do than just staying where you’re at. So first one I would say, don’t give up, don’t give up, don’t give up. Keep going, keep going, keep going. The group that just got into running the business, you and I have talked about this before. I think you need to figure out some sort of operating strategy. I like to think of strategy, structure, people because that’s what they teach at Walmart. I think that’s a Bain structure or a Bain system that they teach. Try to figure out what is your strategy. Try to figure out what structure you need, like what kind of org chart do you need to accomplish that. It’s usually ops, sales, marketing, finance, HR, something like that. Figure out who your leaders are, give them the resources they need, and get out of the way so you can focus on building the business. If you’re the one doing any one of those things as the new op co leader, you won’t be able to grow. So, getting simple on that I think is my biggest advice early on, but again, don’t give up there too, because you could get stuck running that one business forever. You may never get out of it. So, keep going with your strategy. You got one done. It took me a year, me and my partner worked our butts off, and it took us a year to get our second one. We’ve done 19, we’re about to add 20, it almost seems crazy to say now, but that first one, that second one, really, really tough to do. And you should not give up, you should never give up, but push until you get to two, three, four, five. Somewhere around there, there’s some magic that happens.
Seth Deutsch: That’s right. The velocity picks up and you are able to elevate. You’re able to bring in the right talent and you’re able to elevate. Listen, I love this. Thank you so much for doing this. Let’s do it again when I’m back out here.
Steve Carroll: Yeah. Well, it’s not going to be so hot for a while. You might as well plan to come out at some point.
Seth Deutsch: Let’s do it. Let’s do it. All right, man. Listen, I really appreciate it. And we’ll talk again soon. Thank you so much for tuning in to Diners and Deals from our not so diner-ish location, but still had a very good conversation. Just two guys hanging out. And thank you so much for sharing the wisdom. Talk soon. Bye.