As an entrepreneur, you’re always trying to grow your business because if you don’t grow, you are dying.
That is a basic fact. It’s taught in MBA schools and understood by entrepreneurs everywhere.
You’re growing or you’re dying. There’s no such thing as stagnation.
Here’s the thing, there are actually two ways to grow your business: Innovation and acquisition.
Notice that I didn’t say organic. That’s just a business task that you must do. It’s incremental growth.
- Innovation is how you can really grow.
- Business acquisition will really grow your business.
These are the two real ways to accelerate growth in your business.
Growth through Innovation
The first time that I ever acquired a company, I was running a printing company and I bought the business originally because I saw a major change in the industry. I saw new titles by self-publishers exploding. I saw new technology being able to produce low runs for traditional publishers. This allowed them to expand their available libraries, hold lower inventory and sell more titles moving to just in time inventory for the publishing industry.
So, I acquired the company and I started to run it, knocked some walls down, put in some digital printing machines, and small run binding equipment so that we could sell short run digital printed books to our traditional publishing companies that we already had as customers. I think we had 125 existing publishers as customers. We brought this new technology to them. The good news is this innovation, especially at that time, became about a quarter of the revenue in 18 months in a company doing about 8 million in revenue.
Although it had a significant impact quickly, it started to slow down very quickly. I realized it was because we didn’t have certain infrastructures. We lacked methods to sell this new technology to new business.
We had a great first step but we couldn’t expand at the same rate of growth.
What I understood by buying that first company was that the multiples or valuations of book printing companies in the late zeros, 2006 to 2010, we’re actually very low. They were as low as 2.3x on seller’s discretionary earnings. You could buy these companies for slightly over two years of earnings.
It wasn’t a no brainer. A lot of the companies were declining because of what was going on in the industry. These trends played a big part in the fact that I never actually grew through acquisition despite my best efforts over the course of four years.
We had the innovation part but then we needed to accelerate through acquisition.
Keep in mind that these are not mutually exclusive.
You can start by acquisition, which Buy Then Build covers.
You can grow through acquisition.
You can grow through innovation.
You can start through innovation.
Starting by innovation has really taken the limelight over the last 20 years in entrepreneurship, if not longer.
I want to draw your attention to something that I think is enlightening.
Think of the most in a innovative companies of our time.
Facebook, Tesla, Amazon, Microsoft, and Apple.
What do they all have in common? Check this out.
Facebook over the last 15 years has acquired 78 companies! One of the most innovative companies of our time has acquired 78 companies.
Tesla has completed 9 acquisitions. One of them was about seven months ago but did you hear about it? All the noises are around innovation, but how are they actually growing their business? How are they building the infrastructure? How are they getting the things that they need? Acquisition.
Microsoft has acquired over 200 different companies.
Apple, the originator of the iPhone… the most innovative company in the history of mankind that pride themselves on creating the products that people want not that they think that they need. This company has acquired over 100 companies just in the last six years alone.
Growth through Acquisition
Now we all know that there are certain companies out there like Blackstone and Berkshire Hathaway that are infamous for acquiring companies. They don’t innovate. They acquire.
Take some of those numbers that we just went through Facebook 78, Amazon 128, Microsoft over 200, and Apple over 100.
Berkshire Hathaway, probably the most famous company for doing this strategy, has completed ONLY 52 acquisitions in the entirety of their existence.
What this tells me, and should tell you, is that the most innovative companies embrace acquisition even more aggressively than the companies that use it as a business model on its own.
Why is that? It’s because acquisition and innovation work together.
The why behind acquisition really boils down to one of two things:
(1) it’s the single fastest way for your business to acquire revenue, infrastructure, geographic space, additional customers. a strategic product, talent, etc.
It’s a way to move into new markets quickly and use that innovation to accelerate that growth.
(2) it’s a great use of capital when the leverage is available. With the equity buildup, it provides exceptional returns compared to any other asset class. Just look at the aggregator rollups happening in the fulfilled by Amazon or FBA space right now.
These companies have raised $12 billion with about 9 billion just in the last 11 months alone.
There are 70 companies called “aggregators” buying these small FBA companies. When I say small, I mean sub $5 million in revenue companies.
It’s a great way to use capital and the single fastest way to accumulate revenue, infrastructure, talent, strategic products, etc.
The benefit is realizing this.
I didn’t invent buying businesses when I wrote Buy Then Build. When I started buying companies, it was a whole model, but no startup entrepreneur was utilizing it.
You are not limited to starting from scratch.
You are not limited to growing organically.
You’re not limited to growing through innovation as an entrepreneur.
You can buy all of these things at smaller numbers and be backed by banks, SBA loans, investors, any of these other things and make great deals.
If you plan on buying a business in the next 12 months, please consider applying to the Acquisition Lab, our do-it-with-you buy side advisory service. Gain access to world-class education, support from our team of experienced advisors, a suite of tools, and a vetted community to help you succeed in that first acquisition or in implementing a grow-through-acquisition strategy.
