John Corcoran 9:55
That’s truly phenomenal, that you leave a company and you leave with a check. For him to invest in that new company that, you know, there are so many other companies where people are embittered, or they’re, they’re angry at that person for leaving or won’t let them leave. But that was the reality that he ends up investing in your new company.
Michael Arrieta 10:13
Yeah, it was amazing. He’s the investment, half and half through Dell ventures so that we can have a partnership with Dell. And then half personally, it was amazing. It’s something that both the CEO of DocuSign and I were very grateful for. That probably paid off pretty nicely for him. I think very much.
John Corcoran 10:34
What I’m, what did you see and DocuSign? This little, you know, 2014, when you joined? Where were they at in terms of revenue or employee count at that point?
Michael Arrieta 10:45
employee count, we were right below 200. So we were a pretty small company, we were on one floor in this building. And what I saw on it were a couple things. One is I tasted what it was like, being at a small company, having a little bit of equity, and having a transaction. Right. And I tasted equity. I’ve never, I mean, it’s not like I tried to get equity at Wyse, it just comes with any role when you join a small business in Silicon Valley. It’s right, yeah. So once I got acquired from Dell, I was like, wait a minute, you’re gonna get in, it’s already like we’re outside. Yeah. And so that was just as a hobby for me that I would tell anyone I like where real wealth is made and real opportunities created is through equity. And so after being at Dell for two years, you know, help integrate the two companies and do M & A and being part of Michael Dell’s private transformation team. I got to learn Tom, but at the end of the day, I was like, I want to do something wise, where the goal is to have a liquidation. And so my mind and my heart set there. I was also traveling to Round Rock, Texas every single week, and I was living in San Francisco. And so there was a lot of that going on. A lot of my friends are joining Uber doordash. I mean, all these companies, I’m like, I’m working at Dell. Right? And
John Corcoran 12:08
so I just kind of like being around the block a lot.
Michael Arrieta 12:11
Yeah, well, you don’t live in Silicon Valley in the middle of San Francisco through these crazy unicorn days where everyone’s dying to become a $1 billion pre IPO company and work at and work at Dell, you know? Yeah, as much as I loved it. So there was that itch inside. But I also love the cheapest staff role where you’re under someone’s PR and wisdom in his sermon, and you’re learning it. I mean, it’s a Harvard Business School MBA, mixed with a Stanford school MBA 365 days a week in the real world, right? He paid for it. So I was obsessed, the cheapest Apple two, I didn’t just want to go to an individual contributor role. So the perfect opportunity came, one of our board members said that the CEO of DocuSign, he was looking for a new chief of staff. It was in San Francisco, it was a small startup. And I could learn from an amazing CEO. So that’s why I joined.
John Corcoran 13:04
And was it a big learning curve? Or was it not? Because you were coming from a tech company, you know, the tech company at that point?
Michael Arrieta 13:11
It was a massive learning curve. Yeah, it was a massive learning curve, given that it was truly software as a service. You know, the Wyse world with software or hardware with some software, Dell was still primarily a hardware company. But now you’re going into a purely SaaS business, you know, you’re going into a company that’s living on fundraising, right? You’re going to a company trying to grow 100% year over year or more, right? If we’re I mean, we can’t keep up with headcount fast enough. So it was going into a tornado.
John Corcoran 13:45
Yeah. And so now, they have 5000 employees. So you must have been hiring like crazy. What kind of systems did you put in place in order to ensure you know, the systems work for hiring that crazy?
Michael Arrieta 13:57
I mean, everyone has an answer, right? But you make it up as you go. I could give you a fancy answer, say, well, John, we have this system and this and that. But this, we were all making it up as we go, you know. So getting well in the beginning, we would just put something on LinkedIn. And we would put the career and put it on the careers page. And a lot of people will go to our website to look for careers. So we get a lot of heads there. You know, we’ve asked our recommendation that we would ask our network, hire recruiters, and then, you know, we didn’t have that many people to hire smoochies. That’s when we are good. So it was just really messy and scrappy. But then we started hiring really world-class executives, right. So we hired a great chief HR officer, and then we hired a great VPS of operations for HR and so forth. So by hiring the right people, they brought in the right systems.
John Corcoran 14:50
Yeah. Now talk a little I want to get into Garden City in a moment, but before we do, talk a little bit about you know, kind of running reflecting on what you learn from DocuSign, because what’s really interesting to me about DocuSign is that it was monetizing something that wasn’t previously monetized or people didn’t expect to pay for all of a sudden you’re paying for this software, in order to transact contracts digitally that in many ways that was very innovative at the time, it first many companies is innovative today, and 2021. It shouldn’t be. But, um, so. So talk a little bit about that. And, and then also how that, you know, reflects the work that you do now working with service companies, many of which need to evolve and change and embrace new technologies.
Michael Arrieta 15:39
Yeah, so you nailed it, right. When I went into DocuSign, I was like, This isn’t that innovative? I mean, we’re helping companies send out electronic signatures, you know, we were like, this is like, we’re primarily known for realtors, like anytime I wear some good and some DocuSign swag. Someone always says at the airport, I just bought my house and I use DocuSign. That was it. Nothing else. No. And so it was, but what, but what was really impactful was when we, when we started selling to corporations and enterprises of any size, we would see massive, massive benefits, they would drive an organization. I mean, there would be massive ROI. So they would save hard dollar savings, there’d be better customer experience. customers love it better than the terrible, long, manual process it was before and better security, right. And so it really started to take headway there. What happened to me was, you know, I’m, I come from a family of hardworking people, I was, my sisters and I were the first people to ever graduate from college. I’ve always been obsessed with boring, non sexy, basic service companies, you know, car washes, dry cleaners, landscape, companies, h bag, plumbing, anything like that, right? I’ve just loved those businesses, they’re easy to understand, I understand the people that work in them. And very simple things could dramatically improve the business through either growth, growth, or bottom dollar. net income, right. And so I’ve always had that passion within me. And I would see how DocuSign would start to impact these businesses. So what I do today has always been in my heart of wanting impact, and by investing in small businesses and transforming them and modernizing them. I didn’t really start to be connected to roles at DocuSign. But I’m seeing that basically, any software is like DocuSign. Help me small.
John Corcoran 17:40
Yeah. And it’s interesting for me, since I have practiced law for many years, and I’ve seen that industry, legal industry is affected by technology and continues to be affected by technology, but talk about Garden City, what inspired you to do that. And first, before we get too deep into Garden City, it was March of 2020, which kind of is seared on all of our brains? I imagine you made the decision a little bit earlier that you’re going to move this new direction, but what is it like starting a new entity in March of 2020? What was that transition?
Michael Arrieta 18:11
Like? Yeah, so I knew in February of 2020, I read a book called Garden City. And it was written by this pastor, and then John, Mark Homer. And it was just this really easy book about how we’re all creating God’s image. And every man, woman and child should have an opportunity to thrive and prosper and flourish and just have a life where they have opportunity, right? And when I read like, man, if you really want to drive change, the best place to drive change is where people spend the majority of their life, which is that work, right? And so what if we create a Berkshire Hathaway company modeling after Berkshire Hathaway’s model where we buy businesses that employ lots of people. And then once we have these businesses, we now have an environment that we can impact people’s lives. We could give them better wages, we’ve given better training, we give them better future opportunities, right? We can invite them on this journey of helping create a built to last organization. Right. And so that idea came to me in February of 2018. It’s been two years with the idea of realizing what I am doing at a Washington private firm, but then when I started realizing about what private equity was, I didn’t like anything in it. I didn’t like the private equity firms buying companies with almost all debt and no equity. I didn’t like that they buy companies with the goal of just buying it and flipping it in three to five years. Right? I don’t like that. They come in and they replace almost the entire management team, right? All to save dollars. I don’t like any of that. Right? So I said, Well, what would it look like to have a really purpose driven holding company like Berkshire Hathaway right?” And so I said, Well, what if we buy these family owned service companies and we Buy them with all cash, very little debt. And we come alongside the existing management team. And we say how can we help you? Like, can we help you with generating a better culture? Can we help you with enabling some new technology like DocuSign? Or sales loft, or Salesforce or whatever? Can we help you with the magic? And we help you with digital marketing? Can we help you with business development introductions through our community of investors, right? How can we serve you so we can grow this business, and we have no intention of selling? So we don’t want to split this in two years, five years, we want to have this forever, right? So we want to build amazing businesses. So that was a vision that took me two years, though, to think through it really create this unique structure, you know, invite investors into this vision. And then I left DocuSign in February 2020, having no clue that COVID was gonna hit less than three weeks later. Yeah.
John Corcoran 20:53
And what was it? What was your reaction when it did, and you’re launching this new entity, imagine freaking out, maybe for sure for your time.
Michael Arrieta 21:00
Fortunately, I left DocuSign, February 14, on Valentine’s Day of 2020. And we had $20 million dollars committed by the end of February. And so when COVID really hit the beginning of March, we already had committed capital, this was a huge, huge, huge blessing. pros and cons for COVID. In my world, right? The cons is that really good businesses that just took a massive beating on earnings last year, they’re like, I’m not going to sell right now. Because you’re gonna value my business, what I did last year, which is not a proper representation of my earnings, right. But then on the flip side, there are other business owners that they’re like, Hey, I do not want to deal with the stress of having to have my company recover and inject more capital into it right now, right? I want out, I don’t want to deal with a COVID. Again, I don’t want to deal with another downturn, right? I have too much stress. I’m 75 years old, right? I don’t want to roll up my sleeves and help recover the business. So there are great businesses that suffer or suffer that the owner just wants out, which works for us as well.
John Corcoran 22:04
How do you determine what is a perfect acquisition target for you? You mentioned some of the criteria there. But you know, how do you know that the management team is right, it’s the right size, that they’re open to new technologies, but they’re not going to be threatened by you coming in? And, you know, I imagine that has maybe taken a little while for you to figure those things out.
Michael Arrieta 22:28
Yeah. So basically, we have, we have looked at over 450 businesses now, Since launching, and we’ve invested in two, right? So pretty, pretty low ratio, their businesses actually go through most because the businesses that we look for are all sub 10 million EBITDA. And almost every business in that niche in that market are all what I call owner hustles, the owner gets hit by a bus, most of the business is gone. So we’re not trying to buy a business that only exists because the owner gets in there and makes it work. We’re trying to buy businesses that actually have a niche and have some sort of secret sauce that makes it tick essence for the secret sauce that makes them have a premium over their competition. So sometimes they have a rock-solid, really, really, really professional management team. Sometimes it’s that they are the trusted, trusted, trusted brand in town, people will pay a premium for that. Sometimes it’s a bit of a proprietary method, product or service that no one else has. Sometimes it’s an actual geographical moat, that no one else can get into that territory for whatever reason, right? So we look to say, okay, out of the 450 businesses that we looked at, what are the ones that are actually special, that are actually neat, that are not known or hustle, right, that have double-digit margins? Right? Many businesses these days are operating in sub 10 digit or sub 10% net margins, right? We look for businesses that have been around for more than seven years, right? So have a good trajectory of profitability. It’s kind of all those things. It’s kind of the perfect storm. You know, there’s not one specific thing. It’s just kind of an easy way to check a lot of boxes. Yeah.
John Corcoran 24:12
And you mentioned Berkshire Hathaway, you know, Berkshire has gotten a lot of companies to kind of operate in silos that are very different from one another. You got Mrs. C’s, and you got insurance and you got railroads. Do you view them as all different companies that just are connected by their, you know, own common owner? Or do you see these companies having synergy between one another, but definitely
Michael Arrieta 24:35
not have synergy between them? I mean, see the synergies of Geico, right. But it’s more so I think on the Berkshire model, it’s more so how Buffett now runs his portfolio companies that are very hands off and leans on the management’s he says. It’s like we never even did a transaction just as it was the day before the transaction David all the after the transaction. He’s betting on the Rock Solid management team that has a great product, right? arm a little bit different, obviously, you know, because most of the times the businesses that we are buying, the owner is looking for a succession or liquidity plan. Right. So for us, there’s this whole thing there, John, called the silver tsunami. The silver tsunami means that right now in our nation’s history, we’ve never had more businesses going through, basically needing to be sold. And now, baby boomers were the most entrepreneurial generation in our country’s history, right? So what happens is that you have, you know, on Smith over here that he’s 69 years old, he runs the biggest h bag company in Knoxville, Tennessee, he doesn’t know what to do with it. His sons and his daughter are, you know, a nurse, right? Nobody wants to take over dad’s he does, yeah, he has the one to pass it to. And then he doesn’t want to just go sell it to private equity. Maybe it’s too small for private equity for the large guys, because you know, they need to deploy their capital, and they can deploy it on writing five to $10 million checks. Right? So maybe it’s small. So who does he sell it to? What’s the succession plan? Right? Those are the people that we look for. So we partner with that John Smith that this example, many times, we’re partnering with John to figure out John, who is it that would be best to take on CEO role? Is it someone within the business that we promote from within, as someone from the outside that together we look for that perfect person, it’s going to this business, right? And knowing that he’s working himself out of a job eventually, maybe he could stay on as CEO for another year or two? Maybe he moves to a chairman or some sort? Right? Yeah. But the whole goal is that he’s eventually moving out.
John Corcoran 26:42
Yeah, such an interesting model. Alright. We’re nearly out of time, Michael. But I do want to ask a question that I enjoy asking, which is, you know, I’m a big fan of gratitude. So as you look around at your peers, or your contemporaries, and you’ve held, held a lot of hats, and you’ve worn a lot of hats in your career. So you can define that however, you like. Who do you respect? Who do you admire these days?
Michael Arrieta 27:07
Of all, first of all, there’s a lot of people I respect, a lot of people that I admire. The most applicable and relevant to me are really two people, but one is Brent Beshore. He runs a firm, very similar to Garden City. It’s a three $400 million permanent equity. So he’s buying small businesses just like us, right, a little bit bigger than the market, looking at, he looks to come alongside the management team, not really change a whole lot of things, if anything at all, and just hold the business forever. And so he now has about 10 businesses. I really admire him, because he started just one business, then two, then three, and then he raised a $50 million fund just like we did, and then now he’s the $300 million fund. His values are embodied every single day, right? He’s extremely generous with his time, I was kind of idolizing him the two years that I was looking at leaving DocuSign to launch this. And then when I reached out to him telling him about this idea, he just put his arms right around me and he just has been holding my hand for the past year helping me launch Garden City. I speak to him weekly, professionally, and personally. So I really admire what he’s done both professionally and personally. Then the second one is my lead investor, George Huber. Um, he’s just a self-made amazing entrepreneur that partners with Governor Jeb Bush and a private equity fund. And I just really, really, really respect how he’s come alongside, again, me to launch Garden City from day one ever since I told him about the idea. He just continued to blow wind in my sails, continued to support me, said no matter what, I’ll be your lead investor, always giving me new ideas and so forth. So both of those guys, respect and admire.
John Corcoran 28:53
Very cool. All right, Michael, thank you so much for doing this. Where can people go to check you out? Joingardencity.com? Is that the best website for you and anywhere else that they should go to learn more about you?
Michael Arrieta 29:04
Yeah, I post a lot on LinkedIn. So I’m on LinkedIn. Just checking out Michael Arrieta, or website, joingardencity.com. Excellent. Michael. Thanks so much. Thank you, John.
Thank you for listening to the Smart Business Revolution Podcast with John Corcoran. Find out more at smartbusinessrevolution.com and while you’re there, sign up for our email list and join the revolution. And be listening for the next episode of the Smart Business Revolution Podcast.