Buy, Don't Build

Every business owner I speak to wants to grow. But the "one-truck-at-a-time" grind is painfully slow.

You see PE firms acquiring competitors and think, "That's not for me. I don't have a few million in the bank."

Well… What if you didn't need it?

Last week, I talked to Jared Gass, who just acquired Hidewood Fiber, an underground fiber optic company in South Dakota. What’s more, he did it with almost no cash out of pocket.

I'm breaking down his acquisition playbook and why this is the ultimate shortcut to growth (and an eventual exit).

Jared didn't find this business on a marketplace or through a broker. He already knew the owner's daughter, so he texted her: "Would your mom ever consider selling?"

Her response: "Yes, absolutely. You should call her."

That's it. One text changed his life.

The business had been around since 1998, and the owner was ready to move on. She'd even tried selling it before, but the buyer wasn't the right fit.

Key takeaway: The best deals aren't always advertised. That local business you drive by every day? The owner might be ready to sell, but only to the right person who asks.

And the opportunity right now is huge: 41% of all US businesses are owned by baby boomers, many of whom are ready to retire but don’t have a succession plan. 

In their second meeting at a coffee shop, Jared asked Linda (the seller) about seller financing.

She immediately threw out a percentage she'd be willing to carry.

"Once she did that," Jared told me, "I knew this was probably going to be a deal we could get done."

His final capital stack looked like this:

The seller financing was crucial and showed Jared that Linda not only believed in the future of the business but that she trusted Jared to succeed.

"I've always been an entrepreneur," Jared told me. "But I'm not a cash-rich guy. I don't have stacks of cash sitting around."

The lesson: You don't need to be rich to buy a business. You need to be resourceful.

Jared is now a ShareWillow customer and two weeks after closing, he's already implementing performance pay for his team.

"Charlie Munger has a quote: 'Show me the incentive and I'll show you the outcome,'" Jared said. "Whether it's in the workplace or coaching high school basketball, if you give them proper incentive and structure it a certain way, they'll go above and beyond what they think they're capable of."

The previous owner had complained constantly about employee turnover. But Jared sees it differently:

"If you went to these guys and said, 'Are you winning? How do you know you won today?' I think it would be very challenging for them to articulate that. I want to build that in place."

During our conversation, we touched on something that should make every entrepreneur's ears perk up:

Small businesses (under $10M) trade at 3-5x multiples.

But once you cross $20M? They can trade at anything up to 20x+ multiples.

This is why acquisition makes so much sense for successful owners. You could spend years turning your $5m/year business into a $10m/year business by gradually adding trucks and expanding the service area. Or you could acquire an already thriving business and integrate it into yours. 

Buy three $5M businesses at 4x, roll them up, improve operations, boost margins, and suddenly you're sitting on something worth 5x what you paid.

This is exactly what Jared's thinking about: "If I can acquire multiples of these companies and roll them up under one roof... now all of a sudden I have a smaller piece of a bigger pie."

At the end of our conversation, Jared shared something we all know to be true, but often overlook: 

"Businesses generally are people. As an attorney, I dealt with people. In this business, I deal with people. It's all just people."

That's the thread that connects everything:

Master the people side, and the business side becomes remarkably straightforward.

His parting advice? "The opportunities are available for people like me that aren't cash-heavy, just by doing creative deal structures and being good with people."