My First Million - I Made $50M Buying & Running Boring Businesses
Brent Beshore, founder of Permanent Equity, shares insights into his private equity journey, highlighting the importance of strategic acquisitions and the role of people in business success. He started by buying companies with a focus on long-term partnerships and industries with low change potential. His approach involves no debt, long-term capital, and a unique profit-sharing model that aligns interests with investors. Beshore emphasizes the significance of understanding market dynamics and the importance of selecting the right leadership for acquired companies. He uses personality assessments to evaluate potential leaders, ensuring they align with the company's culture and goals. Beshore also discusses the challenges and unpredictability of running businesses, noting that all businesses have inherent dysfunctions due to human factors. He stresses the importance of humility and adaptability in leadership, as well as the need for strategic market selection and strong leadership to drive business success.
Key Points:
- Strategic acquisitions focus on industries with low change potential and long-term partnerships.
- No debt and long-term capital structure with a unique profit-sharing model align interests with investors.
- Importance of selecting the right leadership using personality assessments to ensure cultural fit.
- All businesses have inherent dysfunctions due to human factors; adaptability and humility are crucial.
- Market selection and strong leadership are key to driving business success.
Details:
1. 🎤 Introduction to Stacking Geese
- Brent began his career as a founder, which laid the groundwork for his transition into investment and acquisition of businesses.
- Initially, Brent successfully raised $50 million for his first fund dedicated to acquiring companies, marking a strategic shift from founding to purchasing and managing businesses.
- Following this success, Brent further raised $250 million a few years later to expand his portfolio, showcasing his ability to scale investment efforts significantly.
- Currently, Brent's ownership extends to approximately 16 companies, collectively generating over $350 million in annual revenue and producing about $50 million in free cash flow.
- The strategic transition from founder to investor allowed Brent to leverage his initial experiences to structure successful acquisition and management strategies.
2. 🧢 Buying and Running Diverse Businesses
- The portfolio includes 16 diverse companies across industries like children's clothing, military recruitment, and manufacturing construction services, chosen for stability and long-term partnership potential rather than rapid change.
- The largest business, a fencing company in Dallas, Texas, excels in revenue and profit, dominating its regional market share.
- Businesses are selected based on their ability to operate in steady markets, ensuring consistent returns and minimizing risk, aligning with a focus on sustaining long-term growth rather than pursuing volatile sectors.
3. 💡 Business Ideas and Golden Geese
- HubSpot provides a comprehensive suite of resources for entrepreneurs to identify and validate business ideas, including a market size calculator that helps estimate potential market value, and tools for spotting emerging market trends, which are crucial for staying competitive.
- Aspiring business owners can access these resources for free via HubSpot's dedicated link, offering an invaluable toolkit for thorough market research and innovative idea generation.
- The podcast 'My First Million' offers well-researched business ideas, presenting practical examples and discussions that can guide listeners in launching successful ventures, such as exploring niche markets or leveraging new technologies.
- For example, a recent episode discussed how a startup capitalized on a trending market by creating a subscription-based service for personalized nutrition, illustrating the potential of combining market insights with innovative product offerings.
4. 🥇 Media Cross: The Original Golden Goose
- Media Cross is a military recruitment firm acquired in early 2010, primarily working with the Navy to recruit civilian Mariners.
- The business recruits approximately 1,400 to 1,800 civilian Mariners annually for the Military Sealift Command.
- Media Cross handles all marketing, recruitment, processing, and qualifications as a complete operation for the military.
- The company operates on a fixed contract with an annual escalation based on staffing needs, ensuring predictable profitability.
- The contract with the military has been maintained for nearly 30 years, demonstrating long-term stability and trust.
- Key to the business's success is a leader who has been with the company since its inception, ensuring continuity and effective management.
5. 💼 Accidental Entrepreneur: Buying First Business
- The entrepreneur accidentally bought their first business at age 24, lacking prior experience in business acquisitions.
- Initially made an offer to buy a business which was rejected by the seller, but the seller later accepted the same offer for an all-cash deal, requiring closure in 60 days.
- Faced the challenge of securing financing, ultimately obtaining a $1 million SBA loan by using accounts receivable as the down payment, with minimal cash out of pocket.
- Managed to close the deal within the tight 60-day timeframe despite the complexities of securing the expedited SBA loan.
- The acquisition proved highly profitable, yielding a 20x return on investment, likened to Warren Buffett's acquisition of See's Candies.
- Initially unaware of business operation essentials, such as securing a line of credit for cash flow management.
- Overcame cash flow challenges by obtaining a post-purchase loan from the seller, allowing business operations to continue smoothly.
6. 🎓 Learning Through Action: Private Equity Insights
6.1. Just-in-Time Learning
6.2. Private Equity Experience
6.3. Deal Acquisition and Timeframe
6.4. Long-term Success and Learning
7. 🌟 Securing Investment: From Tweets to Capital
7.1. Innovative Investment Strategy
7.2. Impact and Outcomes
8. 📈 Understanding Returns and Market Efficiency
- Investors typically use the S&P 500, which offers an expected return of around 8% annually, as a baseline to evaluate the performance of active management strategies. Beating this benchmark is crucial for justifying active investment efforts.
- Permanent Equity targets a minimum internal rate of return (IRR) of 30%, and historically, it has achieved actual cash-out IRRs in the low 20s, excluding valuations and cash flow growth. This indicates their strong performance relative to typical market expectations.
- Acquiring businesses without leveraging debt at 5 to 7 times earnings and growing them organically by 7-10% annually can lead to significant returns, potentially increasing into the mid-teens to low 20s. This strategy emphasizes sustainable growth without over-reliance on borrowed capital.
- Small business acquisitions are particularly attractive due to market inefficiencies. These inefficiencies arise not from exploitation but from the inherent complexity and risk, which can result in losses if not managed properly. This presents unique opportunities for investors who can navigate these risks effectively.
9. 🤔 What Makes Success in Business?
- Warren Buffett attributed much of his early success to luck, particularly with investments in Sandborn Maps and Dempster Mill, which were critical to his future success.
- Buffett had 70% of his assets in these two companies, and if they had failed, his career might have ended before it started.
- The turnaround of Dempster Mill was pivotal, facilitated by Charlie Munger's introduction of Harry Bottle, who successfully managed to revitalize the company.
- Buffett's approach highlights the importance of risk-taking in investment, as well as the significance of having influential networks and being open to expert advice.
- Effective business strategy involves simplifying complex situations, as demonstrated by the speaker’s approach to evaluating a pool business based on market dominance, growth potential, and simplicity of business model.
- The speaker emphasizes the importance of not overcomplicating business strategies, focusing instead on straightforward, actionable insights such as market trends and leadership capabilities.
- A key skill in business, according to the speaker, is storytelling and persuasion, which involves making complex ideas easy to understand and aligning interests among stakeholders.
- Success often involves a combination of 'action luck' and 'perception luck', where taking numerous small actions can lead to significant opportunities, and recognizing these opportunities when they arise is crucial.