Introduction
Want to build a big business that you can sell for 10, 20 or even $50 million quickly. Well one of the fastest ways that you can do this is to execute on what’s called a rollup strategy. Let’s dive into it. This strategy will most likely require at least $100 to $200,000 of your own seed capital so you know you can’t be broke in order to build a big business like this quickly and execute on this kind of a strategy. Once that capital of yours has been deployed effectively and I’ll explain how in this video then it really just comes down to structuring additional deals and buying and acquiring additional businesses with other people’s money which I’ll also explain in this video.
Also if you’re new to the channel my name is Adams Wingler and this channel is dedicated to helping people start and scale businesses from 0 to $10 million in annual revenue. If you’re interested in learning how to do that consider liking and subscribing.
Understanding the Rollup Strategy
Rollup strategy. Let me explain a rollup strategy in a few simple charts. Most people build a business the traditional way a slow gradual increase of customers and revenue over a long period of time. The growth trajectory usually looks something like this. So in a normal business model the goal is always to acquire more customers right. And if you have the time to do it and you don’t have the seed capital saved up this can actually be a very viable way to get yourself started.
In a rollup strategy your goal is to acquire more businesses mostly smaller businesses mostly with other people’s money and all of them within the same vertical. So a rollup strategy looks something like this. You start with a base platform business right. This is your core business. It has majority of your systems. It’s a well run business within your niche. Then you go through a series of acquisitions of smaller companies that you acquire in this vertical that you’re working with.
Why do you think Alex F Mo’s business is called acquisition.comom. It’s because Alex Heros is in the business of finding great platform businesses that are already running well and then teaching them how to maximize their profit and their value by acquiring additional smaller businesses within their same vertical.
A rollup strategy if executed properly will almost always be a more profitable and quicker way to build one big business compared to trying to build one singular company over time because as you acquire these smaller companies and build centralized systems into this stack of companies with other people’s money that stack of companies eventually after it’s streamlined becomes much more attractive to private equity. You can sell that stack of businesses to private equity at a much higher multiple down the road. Whereas a traditional business will often sell for a three maybe a 4X multiple of profitability a rollup strategy once it’s condensed and consolidated properly will often sell for 6s even a 10x multiple.
So it’s definitely worth your time to figure out how to execute on this strategy.
Step 1 Pick a Niche
Step one is pick a niche. You need to decide on a section of the market that you can go into and start stacking businesses. For the purpose of this video let’s assume that you’re going to go into the elderly care space and specifically you’re going to go search for companies that provide tech support to elderly people. With 80 million baby boomers about to retire the senior citizen space is about to get really hot. So now you’re specifically looking for businesses that help elderly people navigate their tech problems. You’re also specifically looking for companies that are already established smaller companies that have recurring customers elderly people that are paying let’s say a monthly service fee to be able to have access to people that can help them whenever they have tech problems.
Pro tip here you really want to find an industry that’s highly fragmented.
Step 2 Buy a Platform Business
Number two is that you need to go find and buy your platform business. Your platform business is going to be your base business from which you’re going to determine your systems and your procedures that are going to be streamlined into your other business acquisitions. Integrating streamlined systems like accounting systems CRM systems marketing systems and a whole variety of systems will make it that much easier to sell this business down the road to private equity. You want everything to be centrally located and controlled from one core set of systems before you go and try to sell this business.
When trying to find a platform business what you’re really trying to do is find a well run business within this niche that already has beautifully designed and set up systems that you can implement and streamline into the other acquired companies. Now this is where capital really matters because in order to acquire this platform business you need to buy it. The way that you buy it is the way that you would normally buy a house. You’re going to finance it. One of the best ways to finance a successful platform business is going to be through an SBA loan which is a loan that’s given to you by the government where the government allows you to put 10% down on the purchase price of a company that you want to purchase.
So if you have $200,000 saved up and you put that down as your 10% down payment you can potentially buy upwards of a $2 million company for $200,000 down. Ten percent which is your $200,000 is the equity in the deal and the other 90% is going to be the loan.
Step 3 Acquire Other Businesses With Other People’s Money
Pro tip look for off market businesses guys because the ones that are listed for sale are getting picked over by hundreds of people. You need to go off market and find businesses where maybe it’s people that are close to retiring they’re thinking about selling and then you just happen to walk in the door and you could structure a deal without having 100 other people trying to buy the same business. You’ll get a better price off market and you won’t have to compete for it.
Here’s another pro tip. If you need to find people that can bring in capital to help you buy these businesses put your business up for sale on bis bell.com. This is the largest online website that helps business owners sell their companies and there’s over 3 million visitors on this website every single month that are shopping actively looking to potentially buy a business. Some of these people might not even want to buy a business. They just want to put their money to work in something that’s successful. So if you put your business up for sale not even with the intention of selling your business but just put it up for sale and then allow all these people to apply to the ad that’s up and then instead of pitching them on buying your business pitch them on investing into the next acquisition that you’re going to potentially have in this rollup strategy that you’re executing.
Step 4 Integrate Core Systems
As you’re acquiring these smaller companies your number one priority should be to integrate all of these companies into one core centralized set of systems. Here’s some of the systems that you want to integrate. Accounting and financial management systems, customer relationship management systems, human resource management systems, marketing systems and sales systems, project management tools and document management systems.
This is an overview of some of the main systems guys but keep in mind there’s definitely going to be additional systems that need to be integrated into this stack of businesses. You are the CEO of a stack of businesses here. You’re trying to turn that stack of businesses into one large business that can be sold for a much higher multiple to a private equity firm. So you need to be extremely systems oriented.
Just remember this last core thought. Acquisitions is a massive accelerator for growth. It will grow your business much faster than just trying to build one large business and scale that over time.
Conclusion
That about wraps this up. Consider liking and subscribing and follow along for other great videos that give you some thoughts on how to grow and scale your business over time. On to the next.