Buy and 3x a Project-Based Business in Just 2 Years
Oct 2, 2023
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Johannes Hock, a private equity professional, shares his journey of acquiring an artificial turf installer business and growing it from $5m to on track to exceed $15m in 2023. He discusses the differences between private equity and search, sources of deal flow, valuing and financing a fast-growing business, tracking data, and unexpected costs of sales commissions. He also emphasizes the benefits of having a partner in search and the challenges of financing a rapidly growing business.
Taking swift action and moving quickly in the search process is crucial.
Being open-minded and flexible when defining search criteria increases the chances of finding valuable opportunities.
Purchasing businesses in industries with strong growth potential is highly advantageous.
Having a capable general manager in a business allows for strategic growth and scalability.
Deep dives
The Importance of Taking Action and Moving Quickly
Taking swift action and moving quickly in the search process is crucial. The guest, Johannes Hock, emphasizes the importance of not wasting time and getting in the game early. By being fast, responsive, and easy to work with, searchers can stand out and increase their chances of securing a deal. Even if it means paying a slightly higher multiple or compromising on certain criteria, the goal is to avoid spending excessive time searching and missing out on potential opportunities.
The Value of Open-Mindedness and Flexibility in Search Criteria
Johannes Hock highlights the need to be open-minded and flexible when defining search criteria. The perfect business that meets all desired criteria doesn't always exist. By broadening the scope and relaxing certain search criteria, searchers increase their chances of finding valuable opportunities. Johannes shares his own experience of considering project-based businesses, which may not align with traditional recurring revenue criteria. Being open to different industries and market segments allows searchers to uncover promising businesses that others may overlook.
The Advantage of Buying in a Growing Industry
Johannes Hock emphasizes the importance of purchasing businesses in industries with strong growth potential. He highlights the value of buying in a growing market where there is room for error and a rising tide lifts all boats. By identifying industries with favorable trends and tailwinds, searchers can position themselves for long-term success. Johannes provides an example of his own experience with DFW Turf Solutions, where growing demand for artificial turf and a favorable market climate have contributed to the company's growth.
The Significance of Having a General Manager in Place
Having a capable general manager (GM) in a business is highly beneficial, allowing the searcher to focus more on strategic growth rather than day-to-day operations. Johannes Hock emphasizes the value of purchasing a business with a GM already in place, as it provides the opportunity to spend the majority of time working on the business rather than in it. This distinction allows the searcher to dedicate more time to improving processes, expanding marketing efforts, and driving overall growth. While it may not be a common find, businesses with established management can significantly enhance a searcher's ability to scale and succeed.
Growing a Turf Install Business in a Hot Market
DFW Turf Solutions is an artificial turf installation company based in Dallas. They primarily focus on installing turf in backyards and suburban areas. The business has experienced significant growth, with the revenue expected to triple in two years. The high growth can be attributed to the hot market in Texas, where the demand for turf is increasing due to factors like the influx of homebuyers and the trend of turf adoption. The owners have strategically capitalized on the market growth, investing in additional trucks and optimizing sales channels. They also formed a peer group with other small business owners to leverage their expertise and share insights. Overall, the partnership, market conditions, and proactive approach have contributed to the remarkable success of DFW Turf Solutions.
Partner-Based Search and the Value of Comrades
The owner, Johannes Hock, emphasizes the importance of having a partner in search and small business ownership. He highlights that having a partner can provide support and perspective during the ups and downs of the entrepreneurial journey. It also allows for more flexibility, as partners can fill in for each other when needed. Johannes believes that the financial cost of splitting equity is often worth the benefits of having a trusted companion. Additionally, he mentions the value of forming a peer group with other small business owners. The group provides a sounding board for discussions, problem-solving, and obtaining different perspectives. Sharing experiences and learnings accelerates growth and helps make informed decisions.
Insights on Financing, Margin, and Future Growth
Johannes shares insights on financing and margin considerations in small business ownership. He highlights the challenge of financing a high-growth business due to traditional loan requirements based on historical data. However, they found a bank that used recent performance data, which was crucial for offering a fair price and securing financing. He also emphasizes the importance of understanding margin dynamics, particularly in relation to sales commissions and different sales channels. Furthermore, Johannes discusses the future growth potential of the turf installation industry, which they capitalized on through strategic decision-making, market analysis, and customer satisfaction. He encourages individuals interested in self-funded search to explore the wealth of opportunities available and the potential for long-term success.
