Zahoor Kareem: 13:12
Oh 2000. Sorry. Yes. Not not Covid. Yeah.
And I looked at, you know, the job fair listings and there was 50 companies that were there. And I said, I want to meet these four companies. And I picked out companies either because they’d either just raised capital or the executive team was attractive. And I met those four companies. I got invited back a week later for interviews with all those four companies, and I think I got two job offers out of those four that I really wanted to meet with.
And I picked the company that I liked the senior executive at and they raised a bunch of money. And the long story short of it is that CEO, that whose company I joined because of him ended up being on the board of the second company I was at turned in from being a boss to a mentor to a very dear friend like dear friend, as in, he came to see my daughter when she was born in the hospital. Dear friend. Wow. And so.
Yeah. So I joined a a software company that was, you know, initially was doing things in the world, you know, recording like presume. Right. They were recording streaming audio then they were doing some content management stuff. And so yeah, so I was on the marketing side and business development side there for three years.
John Corcoran: 14:30
Yeah. So you worked in a variety of different roles ops, finance, business development. It sounds like you hopped around kind of different, different companies during this period of time, about 15 years. And you would you describe this time as, you know, just kind of like learning the ropes or learning the tech world?
Zahoor Kareem: 14:47
Yeah, I think it was I was on this path, right, of continuing either learning, learning new things. Step one moving up the ladder. Right. It was all back then. It was like, how do I get to the next level?
Right. How do you get the next title? And yeah, you know, and how do you get the next raise. Right. Because it’s expensive to live in the Bay area and, you know, your first job, you’re making ends meet.
And so yeah. So the second company I joined was in the e-commerce space, had some fantastic growth. I mean, I think the seven year period I was there, it grew from 10 million to 200 million. Wow. And I got to take on lots of different roles there and fixing divisions, launching divisions, small M&A, large M&A, watching it go public.
You know, which was a great, great education right. It was it was like an MBA on the job. Right. So yeah. And figuring things out along the way, which was, you know, which.
I’m super grateful for that experience and for people pushing me to learn more and, you know, and even stretch outside of my comfort level. Right. Because they trusted that I could figure it out.
John Corcoran: 15:55
You’ve since now you have a company where you’ve done acquisitions outside of the tech world. What during that experience, that 15 years of working inside the tech world know you to an interest to not pursue that, but rather to acquire companies that are non tech types of companies?
Zahoor Kareem: 16:15
I think the premise when I started this was how do you generate double digit returns for investors paid out on a regular basis? Because in the tech world, if you start, if you’re in the venture world, you’re raising a bunch of capital for an idea. And 5 to 10 years later, you go public and there’s a return. If you’re in the typical private equity world. You know, the Blackstone’s KKR of the world.
You acquire a company, you do a bunch of restructuring, you sell off pieces, you add a bunch of debt. And seven years later, something happens in you return capital. And I wasn’t I didn’t come out of the banking world. Right. So I wasn’t going to go raise $100 million fund.
That wasn’t necessarily an option. But the idea of telling people that, hey, this is going to generate returns for you on day one, right? You’re believing in me, but your capital is actually going to generate a return on a quarterly basis was an attractive premise, right? So and the fact that you were going to be able to generate 15 to 20% returns on your money, I thought was an interesting idea that people would gravitate towards and would want to participate in.
John Corcoran: 17:23
Yeah. And you actually had a dinner party. So around the time you were going to leave, the last company you worked for, and you decided that you’re going to do something else, you went to this dinner party and you had people you basically saying, yeah, we knew that you’ve always wanted to go acquire something or you tell the story, but you were you were asking. They were asking about what you were going to do next. And you basically revealed this is all the kind of the master plan.
They all knew that that’s what the master plan was.
Zahoor Kareem: 17:53
They did. I had looked at different companies to acquire and shared it, and looked at it with a couple of really, really close friends. And so I was having this dinner probably, probably in early 2015 at the time. And they had asked exactly. They’d asked that same question, what company do I want to look for another company to join?
What do I want to do? And I said, you know, I’m actually going to look at acquiring a company and raising some capital. And they obviously who knew me very well and had heard me talk about this for a long time, it said what you’ve always been talking about. And in essence, at that dinner, you know, the 3 or 4 people committed to participating and being the equity if I found the right deal. And so that kind of kicked off the races of identifying a company to potentially acquire.
And got introduced to a company that was doing last mile delivery services for Fedex ground. Knew nothing about the space.
John Corcoran: 18:53
Know anything about that? Yeah.
Zahoor Kareem: 18:54
Didn’t even know it existed. And I think every company I’ve acquired since with a partner, I never knew those businesses existed until they were brought in front of me and so quickly ramped up and got my got my arms around it, understood that it kind of met the criteria I was looking for. Right. It had. It was consistent operating history.
Easy to understand. Some form of management in place, minimal capital expenditures. I was wrong, by the way, in three out of those four things. But the premise, and I think I’ve been wrong in every deal that we’ve done, like what I thought was what I thought I knew is not what I knew after we acquired the companies.
John Corcoran: 19:31
So for let’s dwell on that first acquisition. So what were some of the bigger areas? You were wrong. Like what needed to be fixed that you didn’t think needed to be fixed.
Zahoor Kareem: 19:39
So the idea that there’s minimal capital expenditures. We acquired this company and Fedex ground, which in essence was the only was the only client. In essence, it was a master contract with Fedex ground.
John Corcoran: 19:51
Now that’s a challenge, right?
Zahoor Kareem: 19:52
A month after we acquire, you know, this company that was delivering in, I don’t know, ten zip codes, a new rule came down and a new type of agreement came down where they forced us to repaint the entire fleet. Now, you know, that’s like a $50,000 expense the first month after you take over an operation. Didn’t realize that.
John Corcoran: 20:13
And there’s nothing you could do because that’s your only customer. You had to comply.
Zahoor Kareem: 20:17
No, I thought yeah. I also learned very quickly that they yielded a big bat. And, you know, I wrestled a bunch of feathers, and I shouldn’t have. So one of my investors to this day, and who’s a dear friend, you know, said something to me which has stuck since that day. And he said, you attract bees with honey.
And that that line has stuck with me because I was I was the bull in the China shop because I was like, I’m your biggest provider in San Francisco. I don’t have to do like, I’m going to follow the letter of the law of the contract. And they weren’t accustomed to anybody pushing back. And so as soon as someone’s pushing back, they reminded me very quickly that they were the big dog on campus and they controlled everything, right. So we were doing an acquisition.
They they railroaded it. We had to restructure it. And then I learned that we’ve got to play nice all the time. And so.
John Corcoran: 21:13
Yeah. Yeah. Because that’s that’s a lot of client concentration. If you have only one customer.
Zahoor Kareem: 21:18
Correct. And there’s no option right. Your trucks are branded Fedex ground. You can’t deliver for Safeway at nighttime.
John Corcoran: 21:24
Yeah yeah. So that’s a bit scary.
Zahoor Kareem: 21:28
That that scare factor is one of the reasons we divested as well of the business seven years later. Yeah. You know, at a healthy return. Right? But we had a couple of tough years where, you know, you’re it’s staffing related, right?
And that truck needs to get out. And if it doesn’t get out, your client is kicking and screaming, asking you how you’re going to get it out the door.
John Corcoran: 21:49
Staffing related. Like you didn’t have a driver.
Zahoor Kareem: 21:52
Right? So if a driver doesn’t show up.
John Corcoran: 21:53
Yeah.
Zahoor Kareem: 21:54
That truck is going to be reloaded with another 200 packages tomorrow. So you have to move those packages today somehow or the other. And so we had to, you know, very quickly learn the additional expense of having spare drivers and having your managers be able to drive. And, you know, and while it’s a consistent space, having one client who dictates your rates and your cost structure is not the business I wanted to be in longer term. Right.
So we learned it took us a while to figure that out, but we still made four more acquisitions in that space before figuring it out.
John Corcoran: 22:28
Before you divest it. And then you also launched and and then you closed and Amazon delivery service was this before Amazon started building their own delivery service? Because there was a long period of time where Amazon used a combination of, I think UPS and and US Postal Service before they built their own.
Zahoor Kareem: 22:46
Correct. So this is when they built their own, they called it their delivery service provider platform. And one of my old managers had left and was working for one such company and called, I think we should do this like you should do this. So, you know, made a few phone calls. We got an introduction and instead of buying a fleet, we wanted to test it out for a year.
And we rented vehicles. We rented a fleet of, I don’t know, 20 vehicles, which was super expensive for a year to test it out. And it was an interesting experiment which reminded me not to start something from scratch. Right. Like you, you know, again, there was a staffing issue.
There was a fleet issue. Amazon, you know, much to their their claim for success is that they’re super hyper focused and micromanage every aspect of it. And so ultimately, it wasn’t really a separate business. Like they would control everything you do. At what time did you show up?
Did everything get delivered? What equipment do you use? What time of year people coming back, right. Are they in uniform? Are they not?
Right.
John Corcoran: 23:48
And so compared to Fedex, it was a lot more micromanagement.
Zahoor Kareem: 23:53
Absolutely. And so a year later, they tried to actually offer us a larger contract to which we said no to and said we’re just going to cut our losses and move on, is.
John Corcoran: 24:04
That they didn’t want to be in this space.
Zahoor Kareem: 24:07
No. And so, you know, it was a, you know, call it a not including my time. It was a six figure loss, right. So, you know, and we continued to kind of not just manage the Fedex business because it had continuously, you know, the package world in e-commerce was continuing to grow at 7 to 10% a year. And so, you know, we were We you know, we were lucky in terms of that.
We, we we we looked ahead a little bit, right. And saw that Fedex was going to start to cram margins down. But they also wanted to build more concentration in terms of the zip codes that you delivered in and partially hard work partially. Good luck. We restructured the zip codes that we had going into Covid to focus on residential only, and got out of the business zip code core.
John Corcoran: 24:57
Interesting. Yeah.
Zahoor Kareem: 24:58
Which which again, worked like we didn’t have to lay anybody off. Our volumes went up 50%. We were sending volume to other companies that had nothing to do during Covid because they were delivering to the financial district, and there was no one in the financial district at the time. And so.
John Corcoran: 25:15
That’s fascinating. There’s I interviewed other companies like this that in other spaces that unintentionally, you know, ended up being well positioned for the Covid downturn, not even realizing that that would be a thing, because there’s other companies that would think like, oh, we just want to focus on urban core, and they don’t realize how much risk they put that in, you know, going into a thing like a pandemic.
Zahoor Kareem: 25:38
Yeah. And we knew that delivering that businesses was also a pain point in the logistics side. Right. Because you’re delivering to a business that you’re trying to find parking, you’re delivering large volumes of product to one individual, which means the profit margin is a lot less. You’ve got massive.
We are spending $10,000 a month on parking tickets, right in San Francisco. And so kind of that shift of going from 11 zip codes all over the place to like, you know, I think it was four zip codes in core residential areas in San Francisco was, you know, good stroke of planning. And then we got lucky with Covid. Yeah. I don’t think you could say that very often, but.
John Corcoran: 26:21
Yeah, when that but when Covid started to happen, was there a moment, was there a period of time, a couple of weeks where you were, you know, petrified, where you felt like it was all going to unwind or. No.
Zahoor Kareem: 26:34
I was on the other side of the world traveling with my family for a year when Covid hit. And so we never, on the business side of it, ever had to shut down because it was deemed to be an essential service. So it was just status quo for us. It was more, you know, make sure everybody’s masked, right? You’re not really engaging with a customer because you’re doing a delivery to the door.
The rules became really easy, right? It’s like, hey, you don’t need a signature for anything, right? Like, yeah, you’re just delivering the package, right? I mean, if it’s alcohol, you still need a signature. But outside of that, it was still like, drop something off and keep going.
And so we actually saw a very big increase in volumes, about 50% within our delivery areas. And because they were deliveries to the home packages were smaller, which means we didn’t have to add more people. Right. Our vehicles just got more efficient. And so we got really lucky that there were no business.
The business continued just as if it was normal.
John Corcoran: 27:41
Yeah. Wow. So at some point you decide that you’re going to divest of this, sell off this business, and you decide to move into a new industry. How did you evaluate what industry you would go into next?
Zahoor Kareem: 27:54
So, you know, the idea was that we would always do another acquisition. But I did four in a span of call it 15 months, and then didn’t do another one for seven years or for five roughly. What are we in 25? Yeah, roughly five years. I didn’t do another one.
And then in the process of looking at other businesses, it was, you know, my my now business partner who was initially just a passive investor on the logistics side. And I started working together. I couldn’t tell you how that happened. He was curious about what I was doing and the returns and I shared because I have no secrets. And and somewhere along the line, we started working together, and I think he came across the business and said, do you know anything about this?
And he’s got a real estate background. And he was kind of intrigued by this. And he said, do you know anything about the water and fire mitigation? I said, no, but let’s look at it. And we had initially looked at this, our first acquisition, and it was already under contract.
So we forgot about it. And then I think it was two months later, the broker called back and said, hey, it fell out of contract for, you know, the the buyer couldn’t get the right financing. Are you guys still interested? And so we said, sure, let’s, you know, let’s dig in and you know, and and put in an offer. And so we started looking at it and again, it kind of met the criteria.
Right. Which in hindsight were all wrong. Consistent operating history, easy to understand, minimal CapEx, some form of management in place and three out of the four after we got into it were all wrong.
John Corcoran: 29:27
And what were the biggest ones that were off?
Zahoor Kareem: 29:30
So one was consistent operating history, right? If you as a customer have a water loss because a pipe broke in your house, you’re likely hopefully never calling me back, right? It happens once to you. It’s not like you’re your water pipe and your fridge is going to break every three months.
John Corcoran: 29:46
Yeah.
Zahoor Kareem: 29:47
So that’s one. Right. You basically have a customer once that was first learning. The second one was Servpro, which was the franchisor had been acquired by Blackstone a year or two before we got into the business. And they wanted to add more franchisees.
And so they were selling off more territories. And we quickly realized after the fact that we had acquired Palo Alto, Redwood City, Atherton, but they were doing a ton of revenue outside of those zip codes. But now all of a sudden, someone else had that zip code. And so that was another key learning. And then the third one was is that the seller who was exiting stage left really managed a lot of the day to day operations, and there were no redundancies with their core people.
And so it took us about a year and a half to build some redundancies as the business got larger. And then, you know, there was not a lot of CapEx. But the first two about the consistent operating history was the key. You know, the big moment going, no, there isn’t like if you move into the commercial side, there is a little bit more consistency, right? If you have a property manager that has a thousand units, they’re calling you every month because something’s wrong somewhere every month, right.
John Corcoran: 31:05
So but you you were in residential only.
Zahoor Kareem: 31:07
At the time.
Zahoor Kareem: 31:08
They were in residential only. And if I look at it now, five years later, four acquisitions later, we’re just starting to identify a commercial sales rep and start to recruit for one to try to build a book of commercial business. Probably do about 20% commercial today. And, you know, with some large corporate clients. But again, it’s not super consistent.
John Corcoran: 31:31
Yeah. So you so you figured these pieces out along the way. And did you stay with the franchise model with acquiring franchises.
Zahoor Kareem: 31:40
Correct. So the we did we did so we so we acquired, you know, under the Servpro umbrella, which is a franchisor. You know, we acquired two territories from an existing operator. A year later we acquired another territory. And then I think about six months after that, we acquired two more territories from, you know, from another operator that were still under the umbrella.
So it was great. We could just consolidate them.
John Corcoran: 32:05
So it’s kind of easier, a little more cookie cutter type of approach that way. Correct.
Zahoor Kareem: 32:10
Okay. Correct. They just get.
Zahoor Kareem: 32:11
Turned in under the same parent company umbrella and you know, just, you know, it’s one payroll system. Right. Yeah.
John Corcoran: 32:20
And how is that working? In some ways, there could be similarities to the Fedex world, where someone else, some other company kind of controls your butt and they change the rules of the road. There’s not much you can do about it. How has that been being underneath, you know, a larger company where they they dictate a lot of the rules for you.
Zahoor Kareem: 32:38
You know, it’s it’s great.
Zahoor Kareem: 32:41
Because they’re a typical franchisor, right? And in the regular franchisor franchisee model, you know, in the Fedex world was very different. I wouldn’t call it acts like a franchise model, but it’s not right. They consider you a third party service provider. And so they’re always threatening your contract.
John Corcoran: 33:07
It’s a very.
Zahoor Kareem: 33:08
Very mature franchisor model.
John Corcoran: 33:10
They have a.
Zahoor Kareem: 33:11
Technology platform that they’re constantly updating and improving. You know, you know, they they hold an annual conference where they bring everybody together to do continuing education. Yeah. It’s great. It’s a ton of it’s a ton of support.
And the phone rings because you are a Servpro operator, right? So people know on the residential side that they’re one of the two major players in the residential side, and now they’re growing in the commercial side. And so, yeah, it’s been a great it’s been a great place to be because again, it’s an essential service. Right. So even during Covid, we actually closed on the acquisition in the middle of Covid.
And it didn’t skip a beat like, you know, it just it continued because the type of work changed a little bit. But we still kept everybody, you know, we didn’t have any layoffs and kept everybody occupied.
John Corcoran: 34:03
Right, right. Now we talked about this before the interview, but you kind of in some ways like there are these categories, categories, categories in the acquisitions world, private equity. There’s a search fund, but you’re you’re kind of neither of those. Do you do you find it’s hard to explain to people what you are or to define who you are, or you know what your company is?
Zahoor Kareem: 34:29
Yeah, I think.
Zahoor Kareem: 34:30
It depends who I meet. Right. If I’m just meeting somebody on the street and say, what do I do? I may just simplify and say I manage X, Y and Z company.
John Corcoran: 34:37
Yeah.
Zahoor Kareem: 34:38
If I’m having a longer conversation, I will keep it simple and say, I manage a private equity fund and we acquire small to mid-size companies. If I meet somebody who’s super well versed, I’ll tell them we run a search fund. And so I think it just depends on the audience. Right. But to simplify it, we acquire non-tech, you know, non-tech operating companies.
And typically where a seller is exiting doesn’t have family and or kids who want to take over. And they want to, you know, they want to exit stage left. Yeah. Right. Yeah.
John Corcoran: 35:12
And and now you’re looking even in other areas as well. So now you’ve been looking into the education space and the health care space. Correct. I guess I’m just so curious about, like, how you can manage this, to move from one industry to another industry, to another industry without the background and experience in these areas.
Zahoor Kareem: 35:32
Yeah. And I think, you know, I don’t I don’t think I’m, I don’t think I’m special in any shape or form. Right. I think it’s just my brain. My brain is wired to be able to understand lots of things very quickly.
And apologies for the cuckoo clock that’s going to ring 11 times, I think. And I think I say no very quickly to a deal. Right. Usually within the first five minutes I will say yes or no. If I say yes, then we’ll dig deeper.
And usually it’s what’s in my circle of competence. What can I understand and grasp really quickly? And one of my favorite business people or companies I should say, is Berkshire Hathaway, right? So operated by Warren Buffett, Charlie Munger, who’s now since passed. And they’ve got 50, 60 companies in their portfolio.
Right. Granted, they’re much larger, but that’s kind of been the model, right? Like they he gets a phone call and someone says, I have this company to sell. And they say yes or no. And then they dig a little deeper.
And so when we’re looking at kind of the next acquisition to get, it’s always been business services education and healthcare. And we you know, we’ve identified, you know, a company in the healthcare space. And I won’t share the name. But the premise is that, you know, that they provide, you know, assisted daily living support in the home, right to to, you know, to individuals. And so it kind of checks off the criteria of consistent operating history.
Easy to understand, minimal capital expenditures, right.
John Corcoran: 37:08
Whether those come to fruition or not. Right. Correct.
Zahoor Kareem: 37:11
But but but but the other tying thing is that if I look at the water and fire mitigation business and this home health business, they’re actually in the business of giving people hope. It sounds a little cheesy to say, but like when our when when our phone rings, when you’re sitting in a puddle of water or you’ve had a fire or you’ve got mold, right? Like you coming.
John Corcoran: 37:34
Up, you’re coming.
Zahoor Kareem: 37:34
To help. Coming to help. Right. And so ultimately, you know, and I remind this to our teams often, right. Like, not that we’re we’re in the helping people business.
But I take it a step further. Right to this is a long answer to your question of like, what are we in the you know, what are we in the business of. Right? Like, we’re actually in the business of taking care of our people, right? And if we can take care of our people by making sure that they have a roof over their head and food on the table, and they can build their families and be successful, they’ll take care of their customers, right?
John Corcoran: 38:11
Yeah. Yeah.
Zahoor Kareem: 38:11
For sure. To me, to me for all of our companies over time. Success is when your employees kids go to college and the kids go, hey Mom and Dad, how did you pay for college? They say, well, I worked for a company that took care of me. Yeah, right.
And and so not directly the question you asked, but I think getting a handle, I can understand lots of different companies pretty quickly. If the company is public, I probably know about it. I spend a lot of time making investments in the equity markets as well, and in a wide variety of companies. And. If I understand them very quickly, I don’t know how or why, but it makes sense in my brain, right?
John Corcoran: 38:50
Yeah.
Zahoor Kareem: 38:50
Yeah, yeah for sure. And you know, and and also there’s the understanding over time that, you know, people are really the key to any business. Right. And so that’s super important.
John Corcoran: 39:00
Yeah. So this has been great. Where can people go to learn more about you. Is there is there anywhere they can go. Because I know this is like kind of your question.
Zahoor Kareem: 39:09
Yeah. Yeah. One of the things that I will, I will commit to doing is we need to have, you know, you know, we need to actually set up a website sooner rather than later for K&L Capital or our holding companies. I need to update my LinkedIn profile with a little bit more detail, because it doesn’t have a lot on it. I’ve tended to hide in the shadows.
Our operating companies do really good work. Our people do really good work. And you know, I help to navigate and provide, you know, high fives in the background. And I am not have not typically been a very public person. And so but we.
John Corcoran: 39:43
I appreciate you coming out and sharing your story here today because I’m sure it’ll inspire someone. And you’ve learned a lot, and I appreciate you sharing some of that wisdom.
Zahoor Kareem: 39:52
Thank you. I appreciate the time, John.
John Corcoran: 39:54
Thank you so much.
Zahoor Kareem: 39:54
All right. Chat soon.
Outro: 39:56
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