Judd Lorson·November 8, 2022

How to Survive Buying a Bad Business | Judd Lorson Interview

Judd Lorson is a Navy nuclear submarine veteran and Yale MBA who pursued entrepreneurship through acquisition via a search accelerator, closing on a Florida-based HOA assessment debt collection company in November 2018 for approximately $5m in revenue and ~$2m in profit. Almost immediately after close, employees surfaced compliance and regulatory concerns about pre-acquisition practices; Judd made rapid, costly changes to the business model, putting him at odds with the sellers and forfeiting the typical seller-assisted transition. The first 18 months were consumed by near-monthly lawsuits tied to prior conduct, cultural overhaul (headcount grew from ~22 to ~45 as most original staff turned over), and layering in compliance and technology infrastructure. Just as the business stabilized, COVID-19 eliminated anticipated recession tailwinds and stalled the growth pipeline for another year. Personal pressures — a newborn at close, family relocation, isolation in South Florida, and his wife's postpartum depression — compounded the professional grind until Judd concluded he needed to step back to save his marriage and health. He executed a ~6-month handoff to an internal CEO successor and remains involved in an advisory capacity. He now invests in search deals and coaches CEOs, with plans to stay in small business at an operator-between-passive-and-full-CEO level.

Deal facts

sde ebitda: ~$2m profit (owner's phrasing: 'a couple million dollars in profit')
revenue: $5m
financing structure: Accelerator-backed traditional search fund structure (~25% equity to searcher)
notes: Closed November 2018. ~20 employees at acquisition. Asset sale with LLC name retained from prior owners. Business was a third-party HOA assessment debt collector in South Florida, expanding to Georgia and the Carolinas.

Why this business

The business had operational leverage — it could serve multiple geographies from a single operations center in South Florida. The underlying debt was backed by real estate (HOA liens), giving it higher collectability than unsecured consumer debt. The total addressable market was ~350,000 HOAs nationwide and the business had only served ~1,000, so the scaling opportunity looked enormous. Judd found it through a miscellaneous-industry cold outreach campaign and got excited by its niche, scalable model.

What's working

Operational leverage: the business could expand geographically without proportional cost increases — salespeople cover territories and the operations center runs remotely
Asset-backed receivables: HOA assessment liens are secured by real property, giving strong collection incentives and priority claims
Large, fragmented TAM: ~350,000 HOAs in the US with only a handful of scaled competitors, mostly small law firms
Internal promotion of a successor CEO enabled a smoother eventual handoff when Judd stepped back
Culture transformation over ~2.5 years grew headcount from ~22 to ~45, replacing most original staff with team members aligned to new standards

What's hard

Undisclosed compliance and regulatory issues surfaced immediately after close — employees flagged practices Judd felt were impermissible; he had to rapidly change the business model under hostile seller relations
Sellers became adversarial after Judd made operational and ethical changes they disagreed with, eliminating the typical soft-landing transition period
Near-monthly demand letters and lawsuits tied to pre-acquisition conduct consumed substantial management bandwidth throughout the first phase
Diligence could not catch the issues because there was no comparable business to benchmark against and attorneys gave non-committal opinions
The LLC retained the same name as the prior entity despite an asset sale, creating reputational and legal confusion
COVID-19 hit just as the business had stabilized (~18 months post-close, March 2020), eliminating the anticipated recession tailwind and flattening the sales pipeline for ~12 months
Personal life compounded the professional difficulty: newborn son at close, relocated family from Boston to South Florida, wife developed postpartum anxiety and depression, isolation with no local community
Judd ultimately had to step back from the CEO role for personal and family health reasons after ~3 years, executing a ~6-month transition
Debt collection is emotionally grinding — constant legal entanglement, regulatory scrutiny, and personal liability took a lasting toll

Notable quotes

I signed the LOI to buy the business that I bought in May of 2018 and my life has kind of been in disarray ever since.

I came in letting people know that I was excited about being there and I wanted to kind of grow the business in the right way and I was quickly — there were some things that were quickly brought to my attention that I made the determination that I didn't want to keep doing things that way.

I don't go down this path if you're not prepared to be humbled because it is going to happen right — no matter what your outcome is, no matter what type of business you buy, how much money you make or don't make — you're going to be humbled many times along the way.

I was living with this person that was my best friend and my partner in life and we had gotten to this point of indifference right between the two of us and it just became super clear to me that I needed to have the courage to take action to frankly save my marriage.