🔑 How to get rich buying businesses (and one interesting deal)
Welcome to The Business Academy.
.I recently hired a salesperson in South Africa. $18k a year for amazing English and he's already starting to perform...
I interviewed 3 others that were excellent that I didn’t hire. But you can:
Paul - $33,600 / yr (click to see the talent quality)
Ty - $21,600 / yr
Keegan - $18,000 per year
Want to hire one of these folks? Respond to this email and I’ll make an intro and hook you up with a $1k discount on the recruiting fee.
Don't wait too long, I'm thinking of hiring another one of these sales guys myself...
The huge deals grab the headlines, but fortunes are quietly made in niche markets every day.
You're more likely to get rich in Private Equity if you pick a unique business vertical, and you focus.
Take a look at this graph:
Niche funds earned a 38% annualized return over this time period, while generalist funds earned 18%.
If you're looking to buy or start your own business, pay attention to this strategy.
The riches are in the niches & small businesses too
I wrote about buying small businesses on X last month: There are more than 350,000 companies in the US with less than $100 million of revenue. These are considered "small" in the business world (you won't see many of these businesses talked about in the financial media when they get acquired). But owning these types of companies can quietly make you rich.
So why should you "think niche"?
Here are a few reasons:
- It's easier to win in niche opportunities (read: less competition)
- you develop specialized knowledge, which increases your operating leverage AND ensures you invest in better companies
I'll give you one example that I see in the market.
HVAC companies with $3M of EBITDA can sell for 9x EBITDA. Some manufacturing companies I've seen with $3M EBITDA can sell for 4x. Why the difference? Because HVAC is a sexy industry for PE to roll up right now, so there is a lot of competition.
At a high level, you can see there is more margin for error with the Manufacturing business trading at less than 50% of the multiple of an HVAC company.
This is a simplistic way to look at it. You can argue that HVAC is a better business model. And there are some manufacturing companies that require a lot of assets. But if you search around and find a good niche manufacturing business, you can end up with a good business at less than 50% of the cost.
If you're just starting out on your own entrepreneurial journey, focus on a niche you think you can win.
🔑 One interesting read
Most of you, my capitalist readers, are here on a journey to build more wealth...so I'd like to explore the end state of this journey:
What is life like for the ultra-wealthy?
This piece is a thoughtful look into how the richest people live, and how their lives differ from the ordinary person's.
This is one of my favorite lines: Money solves a lot of problems. What remains — like how to live a meaningful life, the conundrums of family and relationships, suffering, death — is the essence of life. By implication, to the extent these can be mastered or made peace with, it can be done independently of succeeding with money.
🔑 One interesting deal
Do you love dogs?
Here's a dog daycare selling for 2.4x cash flow.
This deal has an interesting twist: You can also buy the real estate (a 2,490 square foot, freestanding industrial building) for $635k, or $1.2m total for the business and the real estate. Look into the SBA 504a program, you may be able to use it to buy both the business and the real estate.
Also, the seller is willing to offer seller financing for the right buyer, at an asking price of $1.3 million with 50% down.
I love seller-financed deals for lots of reasons, so this could be a great business.
What I like
From a far it looks like a reasonable valuation, seller financing, located in a growing area (DFW suburbs), and includes real estate. The business has healthy margins and only requires a couple of employees to run.
What I don't like
Physical location businesses are challenging. There is a hard ceiling on the scale of the business since you can only house so many dogs at a time. Your success is limited by how well you can market to people within driving range of your location. And if you want to expand, you'll need to buy or lease another building.
Coachella for investors
I’ll be speaking at Main Street Summit in Columbia, MO on October 9 & 10. It's like Coachella for business-buying nerds like me. I asked their team for a discount code for my loyal newsletter readers. If you want to come to check out the event, book your spot here.
You can use the code SIEVA2024 at checkout to get 15% off your pass.
have a great week,
Sieva
P.S. My podcast is back! Check out my conversation with Chris Koerner, who runs a fascinating holding company. Watch it here.
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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.
