14 deals, $30m in sales and 4 options to deploy capital

A quick note before we dive in…

Whether you’re an investor, business builder, serial acquirer or just a high achiever in whatever you do…

It was Ernest Hemingway who said ‘there is nothing noble in being superior to your fellow man; true nobility is being superior to your former self’.

Take a moment to really think about it.

And then set a proper plan for this 2025 year.

- - - -

There are a lot of VERY smart people out there looking to acquire traditional niche businesses.

Take "boring" companies with an EBITDA of $2-5 million.

IMO there is one big problem…

They have been doing TOO well their entire lives.

They come from good families. All they have seen and experienced is victory.

They have everything they want in life. They’ve got all the presents from Santa.

They won at home, they won in kindergarten, they won in preschool, high school, and later in college.

All they have done is win. They have rarely, if ever, made mistakes, and lost.

Just look at the candidates for the top private equity and venture capital firms. They are not wrong, not much has gone wrong in their entire lives.

But when it comes to building an investment firm – again, be it a portfolio of traditional business. First, you need a pipeline of these $2-5 million EBITDA companies; for that you need to be talking to founders, introducing yourself to brokers, you gotta talk to investors, raise funding – putting it all together to finally get the deal over the line. Later operate this same company or companies.

What happens 99.98% of the time… LOTS go wrong.

All the time.

You look so stupid. It's so embarrassing.

The problem with people who haven't lost or made mistakes before... they can't cognitively process that well.

So what’s the reality then? Should they go do another job?

I don't know whether management consulting has lots of failures, but those people seem really smart to me and seem to do well, maybe they should keep doing that job.

They should go do things where if you work hard and are smart, you're going to either win a lot or win a little, but basically you're going to win every day.

But a portfolio of traditional businesses should not be built unless they are prepared to experience a lot of mistakes and losing.

The best deal makers, the best investors, the best serial acquirers, the best compounders, need to be able to tolerate doing terribly... because from time to time, they  do.

- - - -

Something I think about quite often…

A business owner or CEO has, at any given time, four options for deploying capital:

1. reinvest in existing operations;

2. undertake an acquisition;

3. pay out a dividend;

4. pay down debt

Having spoken to hundreds of traditional business owners, the most common are 1), 3) or 4)…

VERY rarely 2)… I always wonder whyy??!

- - - -

When starting and building an investment firm...

It's better to build one with a long time horizon so you kind of have time to figure it out.

- - - -

Experiment a lot to find a field/niche/profession where you're on the way to the TOP 0.1%

Although I believe it all starts with following your natural curiosity…

- I know two guys who earn 7-fig per year playing live and online poker

- A guy who is very good at real estate development (3 recent projects all 17%+ IRR)

- A gentleman who runs a successful personal equipment wholesale business

- A world-class Youtuber who makes videos about World of Tanks

- Big data software engineer 

- Car salesman (constantly sells 2-3x more cars than colleagues)

- Not to mention 10+ different investors and business buyers

All very different people with a surprisingly similar story:

They all experimented A LOT before finding this one thing. Once they found it, they committed for years and decades. In fact, they still do the thing they found.

(1) Be willing to try different things, don't get stuck doing something you don't really like (however… I thought I didn't like selling, but actually I was just selling the wrong product)

(2) Found something that really interests you? Stick to it. Months -> years -> decades

Curiosity is what gets you started, keeps you going, and following it continuously allows you to get really good at your ‘thing’, so you win, eventually.

- - - -

The more I talk to gentlemen who buy and operate two or more businesses, the more I hear that the most important KPI is cash in the bank.

EBITDA is not cash.

Net income is not cash.

The only thing cash... is cash.

- - - -

How has been the week in building my own small holding company?

Consumer loan company

We are working hard to secure funding ($10-20 million) for the next few years.

Traditional businesses

We’re doing a DD on this company ($12mm in revenue, $2mm EBITDA). I made my initial offer in terms of structure, financing, etc.

While they said they will take two weeks to sleep on it, I started talking to banks.

I keep you posted.

- - - -

This week’s podcast:

It's hard to find a better and more humble story of the early days of two "strangers" buying a profitable "boring" business.

They met on Craigslist and the first business they bought was also on Craigslist.

Today, 6 years and 14 acquisitions later – their holding company does more than $30M in revenue.

My conversation with Colin King and Joe Van Deman of Circle City Capital.

Enjoy!

Here are the links to Spotify, YouTube and Apple Podcast.

That’s all for today.

Thanks for reading and talk to you next week.

Take care,

PrivatEquityGuy / Mikk Markus