🔑 1.9 million ways for you to get rich in the next few years
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In my early 20s, I got caught up in the excitement around tech and started a tech company. It was a bad idea. I thought I was going to build the next Uber scale company. But that didn't happen...
In the last few years, I've learned there is a wonderful way to get rich...and most don't see it.
It's not in AI, FinTech, or crypto. Those companies continue to get all the media hype but the probability of success is low.
The best way to transform your wealth is to acquire and grow a small business.
The billion-dollar deals grab the headlines. But the truth is, the market for smaller companies is much more likely to make you rich.
Here's why:
Disjointed Valuations. The market for small companies is fragmented. This means valuations are all over the place. If you're willing to put in the leg work of talking to hundreds of business owners, you can likely find a few well-priced opportunities.
Multiple expansion. You can buy a small business for 2x earnings, grow it, and then sell the larger company for 3x earnings.
Example: You buy a business earning $500k/year for $1 million. You double profits to $1 million/year and can now sell the business for 3x earnings, or $3 million. You make $2m on the sale, plus you collect the profits for the years you run the business.
Lots of things to fix - Many of these businesses are small because they are not run for scale. Often times the owners have made good money already, and are not incentivized to continue pushing the growth of the business. When you buy the business you will bring in new energy to improve and grow that company.
What size companies are we talking?
The group of businesses from $5m to $100m in the chart below are referred to as lower-middle market(everyone has slightly different definitions of these terms).
I'd say that anything between $2m and $20m in annual revenue is the sweet spot. Those businesses already have proven business models, but are still small enough that you'll benefit from the fragmented market dynamics I mentioned above.
Here’s how Permanent Equity’s 2023 shareholder letter explained the opportunity to acquire lower-middle market businesses:
- The market is huge: There are 350,000 US companies classified as lower-middle market ($5m to $100m in annual revenue)
- The ecosystem is highly inefficient, due to the size and the lack of institutional interest in these companies (they want $100m+ companies typically)
- The biggest variable is operation expertise: If you can endure the day-to-day ups and downs of running a business, you can acquire a profitable business and reap the rewards
There are over 1.9 million businesses in the United States with revenues between $1 million and $100 million!
Meanwhile, there are only 5,334 businesses with revenues above $1 billion.
If your goal is to get moderately rich (~$5m to $10m net worth), your best opportunity is buying and growing a small business.
Just think about how many small businesses are run by people who don't understand SEO, PPC advertising, or social media...
I wrote about this trend on X a couple weeks ago. Feel free to check out my post there and read the comments for some interesting perspectives from others.
If you want more guidance on buying your first business, check out my free email mini-course here. I'll send you a series of daily emails with more information on how I source deals, conduct due diligence, and finance acquisitions.
I know I made it sound easy above. Want to get rich? Just buy a small business!
It's actually super hard.
Which is why I've started working on a longer comprehensive email course on How to Buy a Business. It's going to be a paid service. If you're interested in learning about it when it launches, click here and drop your email to be the first to find out.
🔑 One interesting read
How did a sheep farmer go from running a root beer stand to creating one of the largest hospitality businesses in the world?
Bill Marriott went from running an A&W root beer stand in 1927 to running a massive restaurant and hotel empire into the 1980s. His story is tied to the great events that defined America in the last 100 years like the Great Depression and World War II.
If you're interested in business and American history, you'll love the story of Bill Marriott.
What did you think of today's newsletter? Reply back to this email to let me know, or pick one of the ratings below:
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have a great week,
Sieva
Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.