Review of Harvard Business Review
Have you ever read this book?
Everyone in the acquisition game seems to throw this book out there as being THE PLAYBOOK to learning how to buy small businesses.
It was published in 2017 and since then, the concept of purchasing small businesses from retiring Baby Boomer owners has gained HUGE popularity from people like Codie Sanchez, Nick Huber and Ben Kelly.
Rightfully so, this is an untapped niche that doesn't get NEAR as much credit as it should.
Everyone wants to be part of a new, sexy, tech start-up and build a company from the ground up. Which is totally justified. It's fun, exciting, it's your baby, everything that happens originated from YOU and your crazy idea.
There's a thrill to creating something out of thin air and the dream of making it into a money printing machine that is SO dang appealing.
Definitely don't take this article as anti-start-up. It's far from it. I'm ALL about the start up. But as an entrepreneur having started companies myself (some of which were profitable, some were not), I believe that the MOST important thing you can be is CURIOUS.
With a raging sense curiosity, the experiences that you find yourself in will open the door to new opportunities. These opportunities will eventually lead you to doing and building things that you might not have ever thought of in the beginning. All because you were curious and sought new opportunities to learn.
The point being;
If the only thing you've ever thought of in the entrepreneur world is starting an building your own company, I'd encourage you to learn about entrepreneurship through acquisition. It will open your eyes to SO much more that you can do.
At the minimum, it'll add tools to your tool belt and help you run your start up even better. On the other hand, it could be the cashflow and security you need to break from your W2, build something BIG and roll that into any other projects you want.
My intro to entrepreneurship through acquisition came in the form of Self Storage.
Through the process I've used to source, purchase and operate these facilities, I've realized that by only adjusting a few things in the process, we can transfer this system into sourcing, acquiring and operating other businesses outside of storage.
Why buy another business?
If I know how to do it, WHY NOT?
But also:
- Cashflow
- Expanding the portfolio
- Company growth
- Generational wealth
- CURIOSITY
I'll be honest with you, the big WHY (other than curiosity) is cashflow.
While storage is a great asset to be in, we're in the beginning stages right now and running lean. Our 2-3 year return will be solid, but we are still in the search for immediate cashflow to continue to fund the machine and build a bridge out of our W2s.
Having successfully executed storage acquisitions, I've began to allocate some bandwidth to finding other small businesses to purchase. This is where THIS BOOK comes into play. But I have a couple problems with this book...
In search of the answers to fill the gaps in my knowledge, everyone seemed to be pointing me to this. And like the book addict that I am, it was in my Amazon cart and ordered immediately.
After finishing it, I knew I needed to write this and pass this message along. It was too important to not share.
I will say however, that once you get through the first half and past this chapter i'm about to mention, it's actually really good!
Here it is:
DO NOT READ Chapter 4 (Anticipating The Cost Of Your Search) starting on page 45
Like I said, I actually really enjoyed this book and I know that there is a ton left for me to learn. Especially on evaluating individual businesses (you'll find that in Chapter 11) ... BUT I was blown away by chapter 4. In a bad way... Like when you're kid stubs their toe and says a swear word. That kind of blown a way.... 😬
I don't mean to be THAT guy, but as an entrepreneur proudly in the trenches right now, building my empire during kids naps and on weekends while working a full time W2, I KNOW it can be done. I'm doing it.
This chapter essentially says that in order to find a small business to purchase, you need to quit your full time job and it's going to cost anywhere between 500k and 1M...
Negative ghost rider... Is it easy? Absolutely not. But it can be done. Lean in to the dream that you're building. Sometimes you have to be a little crazy. If it wasn't so outlandish and maybe a little risky, everyone would be "living the dream"... and we know that's not true.
I'm not a Harvard Business School professor, nor do I have a huge portfolio of small businesses (yet), but I DO know acquisitions from the storage side.
I'm not writing this to downplay the value of this book. It's a great book, really!
I'm writing this because I don't want people give up on their dreams after reading this chapter.
From one dreamer to another, there will ALWAYS be a whole bunch of noise out there that's in total opposition of your dreams. That's just the natural order of things.
Paul Graham says it best:
If you think about it, a good idea has to seem bad to most people or someone would have already explored it.
Chapter Breakdown:
Success depends a lot on your judgment and a bit of luck. Searching is difficult because the market for small businesses is opaque and fragmented.
Yes, totally agree here. It's a good thing and a bad thing. Good thing is that there are so many businesses out there to buy, bad thing is that there are so many businesses out there to buy. There's hundreds of thousands of Baby Boomers retiring each year with businesses that they own. Not all of them are worth buying, but the point being, there's more than enough to go around
As we will describe, the resulting range of costs is very wide, from over 500,000. Some of the costs are out of pocket, like the fees paid to accountants and lawyers, but most of he costs are your forgone salary and benefits.
This is where the chapter starts taking a far left turn. Yes, you'll want to do it right especially as you get into the due diligence phase, but THE SEARCH does not cost 500k-1M... It can, but that's not the standard nor is it the norm. It's like saying that all watches cost 50k or more... Some brands cost that much, but generally speaking, a good watch DOES NOT cost that much. That's crazy.
Searching with a partner incurs another huge cost: The financial benefits of entrepreneurship are divided in half because the two partners now share the upside. The company will also need to support two salaries. ...One way to circumvent some of the challenges of a partnered search is to look for a larger company to acquire
Sure, that math makes sense. The more partners you have in the deal, the more it'll be split up. I get that. BUT it's totally legitimate to go at this with a business partner. Theres a quote that goes "To go fast, go alone, to go far, go together". I'd argue that if you want to go FAST and FAR, go together WITH the right partner. Divide and conquer. I'd rather have a piece of several watermelons than 1 apple.
Direct sourcing is a manufacturing effort of sorts. You will need to hire two or three people to work full time to help with the volume of outreach, and while these positions can be minimal-cost internship opportunities, the scale of the operation still requires a larger office with more tele-phones, computers, and other infrastructure. A direct approach also requires the purchase of company data to help identify potential targets and professional-grade databases to track the large volume of outreach and responses.
Yes, direct sourcing or off market deals takes more time. You have to manually contact owners and speak to them directly and approach the subject of who you are and what your intentions are. Part of this is a numbers game and part of it is a consistency game with the rapport you build... so a relationship game. This takes time. In order to get over the initial hump of filtering down interest levels and only making the really important calls, you kind of need someone on the front end of the funnel helping with that. We use VAs. At $5/ hr, we have a ridiculously dedicated and hard working team helping us out. This kind of team doest break the bank though.
We are pricing your individual office expenses at $6,000 per year.
You don't need to rent an office...
This wasn't written TOO long ago, phones were fine in 2017. You don't need an office phone, your cell phone and/or a site like RingCentral for your VAs is totally fine.
More than anything, I'm bummed that they made that statement. I don't know why they're trying to talk you out of going about this on your own and as a side hustle, but please forget that nonsense. Skip right over that and keep freaking grinding. You are on a mission and you WILL figure this out.
Finally, you'll need a database system that allows you to keep track of your phone calls, emails, and leads and the companies you have pursued.
It's called Google Sheets or Excel
Final Note:
More than anything, my message to you today is that this kind of entrepreneurship, or ANY for that matter is 1000% possible even with a W2. You DO NOT need to quit your job to make this work. It'd be way easier, but not all of us have the luxury to burn those bridges right now. AND THAT'S OKAY.
Definitely read this book, it's full of incredible insight, but skip right over chapter 4 ;)
If you want a summary of the entire biz acquisition process broken down I go through it in my newsletter about how to buy OR start a business to build generational wealth. I'm in the process, building on weekends and while my kids nap.