In this episode, the host shares insights on scaling businesses through acquisition.com, a portfolio company with a yearly revenue of over $200 million, aiming to increase net worth from $100 million to a billion. The host emphasizes the importance of investing in cash flow positive, profitable, and founder-led companies, with a preference for simple, AI-resistant businesses like Enchanted Fairies. He advocates for private investment opportunities for the general public and underscores the significance of having a compounding vehicle within a business for sustainable growth. The host also highlights the need for a solid product or marketing strategy, the value of customer and employee feedback, and the critical role of founder fit and leadership teams in business success. He concludes by stressing the power of word-of-mouth referrals for profitability and the strategic advantage of recurring or reoccurring business models.
"I like to find ways that I can put some sort of compounding vehicle in the business because otherwise the only way that you scale is by force."
The quote emphasizes the speaker's strategy for business growth, which relies on creating systems that allow for compounding growth rather than relying solely on effort, which is harder to sustain at higher scales.
"I always wished Bezos, Musk and Buffett had documented their journey. So I'm doing it for the rest of us."
This quote reflects the speaker's desire to provide a documented path for others to follow, drawing inspiration from successful entrepreneurs who did not document their own journeys.
"And so these are the actual frameworks that we use to make the decisions about who's in and who's out."
The quote explains that the speaker uses specific frameworks to evaluate potential investments and decide which companies to include in their portfolio.
"So we break this into the hard stuff and the soft stuff. And so the hard stuff is all the business metrics... And then the soft stuff is more about the team, more about the people, the more nuanced and subjective component."
This quote delineates the two categories of factors that the speaker considers when assessing businesses: measurable metrics and the human elements that drive a company's success.
"But we do only private investments, and so we look for cash flow positive companies, meaning every month they spit off more cash than they take to grow."
The quote outlines the speaker's investment focus on private companies that are cash flow positive, indicating a preference for businesses that generate more cash than they consume in their growth efforts.
"Now, there's a difference between being cash flow positive and being profitable."
This quote clarifies the distinction between two financial states of a company, emphasizing that a business can have positive cash flow without necessarily showing profitability on paper, and vice versa.
"From a size perspective, we have tweaked our requirements, so originally they're doing over $3 million in top line. We have since tweaked that to at least a million dollars in profit."
The quote indicates a strategic adjustment in the speaker's investment criteria, shifting from revenue to actual profit as a measure of a company's attractiveness for investment.
And so we invest in assets that hopefully make us more money over the long time than it costs us to buy them.
This quote emphasizes the speaker's focus on cash flow investing, where the goal is to acquire assets that will produce a return greater than their initial cost over time.
And that's just because 80 20, Pareto's principle, and I won't even get into that, but it's common.
The speaker references Pareto's principle, which suggests that a small number of investments will typically generate the majority of returns, a common occurrence in investment portfolios.
I look at companies that I think are boring and simple in terms of they don't have a lot of moving parts, I don't think they're going to be disrupted by AI or they have a lower likelihood of being disrupted by AI.
The speaker prefers investing in simple, stable companies with a low risk of being disrupted by technological advancements like AI.
So it's not will it get disrupted or not, it's how long away is that disruption and how profound will the disruption be?
This quote highlights the speaker's concern with not just the possibility of disruption but also the timeline and impact of such disruption on the company's operations and profitability.
The company either has to have an advantage on their exceptional at marketing or they have to have an exceptional product. They have to have one of those two things.
The speaker stresses the importance of a company having a competitive edge in either marketing prowess or product quality to succeed and grow.
Fundamentally, all of the money that you're going to make is going to be based on an extrapolation of the core unit of value you can provide to the end user.
This quote underscores the principle that a company's profitability is directly tied to the value it provides to its customers, and this value proposition is key to the company's expansion and market dominance.
We actually just look at reviews online. So just like a customer might look at reviews, we look at reviews, we look at Glassdoor that from an employee's perspective, we look at the triple b to see if they have some massive issue that's going on.
This quote explains the speaker's method of using online reviews as a tool to assess the performance and reputation of a company from both customer and employee perspectives.
The more valuable that outcome is, the more profit you can ultimately generate from the business as you expand and take over the market that it exists in.
The speaker highlights the direct correlation between the value a company provides to its customers and its ability to generate profit and capture market share.
I like to figure out a way to have one element of compounding within the business itself.
The speaker values incorporating a compounding element into the business strategy, which allows for growth and value to build upon itself over time.
Ideally that means that twelve months from now, all the customers you have now are still buying and ideally buying more.
This quote describes the goal of customer retention and increased spending as a means of creating a valuable, compounding company.
Hey, mozanation, quick break, just to let you know that we've been starting to post on LinkedIn and want to connect with you.
The speaker is reaching out to the audience, promoting engagement and networking through LinkedIn, indicating a desire to connect with listeners and expand their professional community.
if you could get each of these salesmen to recruit other salespeople to continue to sell for you, then every year, let's say you grow by 10% in your sales staff, or let's say every month you grow by 10% in your sales staff, then you're going to grow really, really quickly and that thing will continue to compound unto itself.
This quote stresses the importance of creating a self-sustaining growth model where employees help in the recruitment process, leading to exponential growth over time.
You just have fewer incredibly smart, incredibly capitalized people competing against you.
This quote highlights the strategic advantage of operating in a niche with fewer competitors who have significant capital and intelligence resources.
A recurring business is like you were on a monthly subscription for Netflix. They are a recurring business model. A reoccurring business would be something like Facebook ads.
This quote defines the difference between recurring and reoccurring revenue models, with examples to illustrate how each model functions.
If you don't get credit for the sales that you make today in two years, you're always starting at ground zero.
This quote emphasizes the importance of building a business where sales made today will continue to provide value in the future, preventing the need to constantly acquire new customers from scratch.
So like I said, one to $10 million in profit per year is kind of like, I would say the majority of the, well, one is the minimum, but one to ten is kind of like, I would say the sweet spot.
This quote outlines the profit range that Acquisition.com targets when looking for companies to invest in, indicating their preferred investment criteria.
"Those are kind of the hard stuff, the hard sciences of the investment portfolio. Like the buy box is what they call in the investor world. It's like, what's your buy box? The other part is the soft stuff. And this may be not may, it is actually the thing that we wait more, which are two elements, founder fit and leadership team."
This quote explains that investment decisions are based on both quantifiable metrics (hard sciences) and qualitative assessments (soft stuff), with particular emphasis on the founder fit and leadership team.
"So when you get into a business partnership or you invest in someone's company, like, you're in, you're co owners, you're now locked in. It's like a marriage, right? And so you want people that you think you could be married to in five years, right?"
This quote compares the commitment of investing in a company to a marriage, emphasizing the need for a good fit with the founder for a successful long-term partnership.
"The other piece is that if we want to grow these businesses, what do you think those founders need? They need an exceptional team. And exceptional teammates will not work for shitty leaders."
This quote highlights the necessity of having a strong leadership team to attract top talent and to facilitate business growth.
"Because one of the big limiting beliefs that a lot of founders have is that they feel like they have to learn their way from 1 million to 10 million when it's much more about becoming the type of person who can attract the people who can help get you to 10 million a month and beyond."
This statement addresses the misconception among founders about scaling a business and emphasizes the importance of leadership qualities over purely knowledge-based growth strategies.
"In terms of having an exceptional product, I measure the value of the product in a few ways. One is sure there's reviews. The second is more of the hard metrics, which is if we can quantify how much value the product or service provides, the average customer, which you can track how much of that is being captured and monetized."
This quote outlines the methods used to evaluate the value of a product, including customer reviews and quantifiable benefits to the customer.
"The biggest metric is always going to be the percentage of customers that come from referrals. And so if a large percentage of the customers come from referrals, not necessarily all of them, but a significant percentage, which for me is like 25% to 30% of the business, comes from word of mouth, then I know that this is a solid business."
This quote emphasizes the importance of word of mouth as a metric for business strength and its positive impact on profitability.