The Biggest Mistake I Made While Acquiring $16.5 Million in Revenue

I want to talk about one of the single biggest mistakes that I made when acquiring $16.5 million in revenue in existing businesses over time, 10 years.
If I were to do it all over again there’s a couple of things that I would change.
After acquiring the initial $16.5 million in revenue is where we started then we shifted to growing it from there.
Looking back there are two things that I would do differently.
The first would be how I approached the acquisitions. I approached it thinking that I could buy all these businesses in different verticals and be diversified, running it like a micro private equity fund.
What ended up happening was once I bought the first company, I ended up selling it and then using those proceeds to go out and acquire six other companies in three completely different verticals. And two of those grow through acquisition in that vertical.
All of that combined ended up being 16.5 million.
Now, my first lesson was that had I focused on one single vertical and bought all 16.5 million a little bit at a time, it would have been a way better strategy.
There’s a couple of reasons why when you build a company that has 16 and a half million in revenue and you run it for a couple of years and grow to 20 million. It’s an easier number to talk about. So, in a $20 million company with $4 million in EBITDA, then the value of that company is significantly higher than if you had four or five $1 million businesses. That is even more valuable than sixteen $1 million businesses.
The reason why is because:
  1. You get multiple expansion. As your company grows, the earnings grow, as does your ability to pique interest from institutional capital.
There is a lot more demand for businesses that are generating 3 million or more in earnings before interest, taxes, depreciation, & amortization (EBITDA).
The more the earnings grow, the higher the valuation of those earnings become. This is what is referred to as a multiple expansion which is where as you grow and get bigger the same dollars are worth more upon an exit.
  1. When the Netflix film “Print the Legend” opens, Brad Feld, one of the most renowned venture capitalists in Silicon Valley, opens with a quote:
“When you’re a leader, when you’re a CEO, every day, something comes up and smacks you in the face”
And it is absolutely true.
What happened to me was that because I was running three different verticals – every single day, every single one of these companies had something come up.
And every single time my phone would ring, I would answer it and it would be a different business model, a different team, a different value proposition, a different customer profile in different geographical territory.
I would have to make decisions on how to run that company or tactical decisions or strategic decisions either proactively or on my heels.
It might be HR, it might be a customer issue, it might be a deliverable issue or a quality assurance issue, some kind of mistake, and you’ve got to get back in the game and call that customer up and say, listen, you know, this went wrong. We’re gonna make it right. Don’t worry, we’re on it. We’re working the weekend. You’ll have it on Monday just to make up an example.
These are calls that I’ve made and you will too, once you buy a company. Every single time, even in six Sigma there’s room for error.
So the second lesson is really that my head was on swivel and it got to a point that I needed to take things off my plate just for my own sanity.
In the end, I ended up selling my B2B fulfillment company, not because the strategy had come full circle. In reality, we had grown the business, but the general manager was ready to move on. Ultimately, we sold that company because I had too many things going on.
I acquired myself into a state of being spread too thin.
So, my recommendation is when you go on to buy a business, buy one, run it and manage it for seven years. Build value. This is how you’re going to get the most out of your experience. Living the life that you want, that entrepreneurial lifestyle living the highest, most engaged life possible while being able to realize the financial returns of the largest asset class of all time.
If you are interested in buying a company in the next 12 to 18 months, this is why we created the Acquisition Lab. It’s a world-class instruction, group coaching, a suite of tools, and a vetted community of buyers. Because of our vetted community, we’re also getting interest from equity investors as well, which is building a flywheel of deals and equity and learning.