$11m rev, $1.9m EBITDA and plenty of RE on the balance sheet

Just a quick note before we dive in…

You are VERY unique, whether as an analyst of a $250mm AUM private equity firm, GP of a small holdco, or an entrepreneur and owner of a $1.9mm EBITDA construction yards rental business…

Making decisions is a very personality-driven thing.

Very curious to know your style, but just so you know what I mean…

I'm more meet everybody. Talk to everybody, have random zoom meetings, chit-chat different biz owners/investors in DMs. I feel like I have information anxiety. I skip a page in the book. I'm like, Oh I got to go back because maybe there's something there. That's going to change my life. It's probably not the healthiest thing because I'm very curious and I want to meet and talk to everybody. Ask about their secrets. Ask about the people they know and how they think and do things. I want to know a little bit about everything, but it's a humbling thing because you just never know.

I'm highly confident that you just never know where the next thing is going to come from and where it takes you.

The arrogant part is I am a 100% certain that we will be investing in some very boring businesses that do nothing cutting edge or crazy but we get these deals on very attractive multiples. So the day we sign the deal we know we made it. Funny part? I have no idea when or how we find those deals. None. But I’m ambitious and confident about myself and my team, and we 100% certainty will find those things.

So as long as I stay curious and ambitious, simply keep going – that's where the next thing comes from. But it's all random until it actually happens.

To sum up, I’d add here a quote from Jack Lord:

“What you have, what you are - your looks, your personality, your way of thinking - is unique. No one in the world is like you. So capitalize on it.”

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A comfy office and a suitable desk kills most dreams and opportunities.

Especially when it comes acquiring and investing in sub $1-3mm EBITDA traditional businesses.

That said, when chasing great deals...

You want to compete with folks sitting in the office waiting for the phone to ring.

When you want to be the exact opposite: 

• always on the road,

• cold call founders and brokers,

• building relationships with investors by flying 3 hours to other cities,

• meeting with folks in industries to understand the dynamics of different companies and markets.

Doing this provides a lot of momentum and you will very quickly find yourself in a situation where there are plenty of great deals.

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"Don't do it, it's very hard to scale..."

"Waste of time as they never sell anyway..."

"Brokers are the way to go..."

This is the feedback I've received when I say I ONLY do cold outreach when it comes to building a pipeline of $2-15M companies and never using brokers.

(1) Buy a list of profitable niche businesses with a long history

(2) Cold call or cold email the owners

(3) Getting a meeting 10 -15 times out of 100...

(4) Then taking these ideas back to the home office where I can discuss investment opportunities with people who are 10 years ahead of me

(5) Repeat

It has allowed me to improve many skills and learn invaluable lessons that would otherwise be nearly impossible.

One which has been "a comfy office and a suitable desk kills many opportunities. Especially when it comes to small traditional businesses".

Doing the non-scalable and boring but important task...

This has been my MBA.

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There are levels to this game and one day in the near future we will be using brokers as well

I talked to one serial acquirer who did about 50 acquisitions, they only use brokers and talk to 900 brokers at the time

0 cold emails, 0 cold calls

So leaving it for the (near)future

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How to grow a traditional $5-15mm niche business:

1. Bet on people who want to win in life. A good welder or a head of ops who doesn't drink and is always on time is worth anything he charges.

2. Build a brand. Be serious about websites and social media. Even if you sell cow cages.

The daughters of farmers and scaffolding rental business owners are already using Tiktok.

3. Create a short 30 sec to 2 minute video introducing your company.

4. Have "meeting weeks" many times a year. Visit all your key customers in real life. It's a relationship game.

5. Be creative with your messaging. People are emotional, your customers are emotional, feed that emotion.  Make them smile, or at least smirk.

6. Distribution is everything. When a customer can choose between two brands, they choose the one they’ve heard about.

7. Follow up like a madman. Even better if you follow up without being too annoying.

8. Invite your customers to your facilities. They want to see where their products come from.

9. Send daily cold emails to potential customers. Ideally, include a Loom video showing what you're doing. Factory, people working, finished product.

10. Have an email list. Don’t trust any social platform. Bank on your email list.

11. Persist to the point where they give you what you want just to get rid of you. The squeaky wheel gets the most oil.

12. Constantly analyze the current state of your company. Map out the biggest growth opportunities. Execute on that.

13. Have a consistent operating process in place. Weekly meetings, communications to the full team, KPIs.

14. Hire a professional to take care of your email workflows, technical SEO, CRO; someone who knows how to optimize your product pages.

15. Create your own product with your brand (if you haven't already). The more stickers the better.

16. Never lower your prices. Always increase your value. Instead of doing a discount, offer free installation.

BONUS: Play the long game. Boring niche businesses are here to stay.

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I've been on this journey of building my own holdco of profitable traditional businesses for the last 2 years...

During that time, a few senior people have said (often in a comfortable position) that what I'm doing is pretty unrealistic given that I don't have much of an M&A and private equity background...

Some of them have even rolled their eyes when I shared my big dreams.

My view on this:

listen to it, get as much feedback as you can, but keep building. You do you.

People are often like mirrors and may say things that are their own fears...

In which case it may be that THEIR own financial situation does not allow them to take as many risks...

That doesn't mean you shouldn't.

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How has been the week in the small private equity world?

Traditional companies

I bought a new list, which means new cold calls and emails. I found some interesting companies that I have already met and they are waiting for a quote.

Both companies have a 20+ year history and are in the $1.2-$1.9 million EBITDA range, founders in their 50s and 70s, but there is a management team in place which.

In addition, there is a ton of real estate on the balance sheet, which provides a great opportunity to do sale-leaseback.

I'll keep you updated.

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This week’s podcast:

Graham Duncan from East Rock Capital is so generous that wrote a letter to his friend who was considering starting an investment company.

Why did I decide to learn from Graham?

• Started his fund at 31 years old

• Today $2B in aum

• Manages the capital of five families

"Letter to a friend who may start a new investment platform"

Here are few ideas from his masterpiece:

1. Life is too short to be paralyzed by the threat of a mixed reference – some of the most revered investors in the world today were at best damned with faint praise when they left their old firms.

2. Your job is to accelerate the process of building trust with people who don’t know you.

3. Having wealthy friends and colleagues? Speak to them, and get them to wire cash into your investment partnership.

4. Wearing a suit to a meeting is one signal we send to people that we’re telling the same story about business and money.

5. Good hiring is critical: the people around you will either protect or infringe on the climate within your skull.

6. It’s very hard to own somatically (as opposed to cognitively) in advance of what it feels like to lose money for other people.

7. GPs are often mismanaging their own anxieties. So your job is to protect your psychology in advance, so prepare yourself for innocent clumsiness by your LPs.

8. It’s the manager’s decision to make the right calls for the portfolio … not the investors

9. Before starting something new – spend time alone for several weeks with a blank sheet of paper

10. Give yourself enough time to build a positive vision of a future fund instead of simply reacting against someone else’s vision or your own prior frustrations.

11. Money is like gasoline while driving across the country on a road trip. You never want to run out, but the point of life is not to go on a tour of gas stations.

Here is my research episode on Graham Duncan and his letter to a friend who may start a new investment platform.

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

That’s all for today.

Thanks a lot for following the journey.

Take care,

Mikk Markus / PrivatEquityGuy