An interview with Entrepreneur, Investor and Advisor, Walker Deibel, based on his book “Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game”.
What is acquisition entrepreneurship?
In terms of entrepreneurship, a lot of times we like to think that starting a business from scratch is what that means. And that’s true and it’s not. Entrepreneurship, at its base, is “increasing value”. Today, we are familiar with real estate entrepreneurs or internet entrepreneurs.
We need to look at this in terms of acquisition entrepreneurship, in other words using an existing company as a platform to kind of grow a business, an innovative business from there.
Startups fail. Maybe 10% of them make it. And the fact is that once you make it, 96% of them never exceed a million dollars in revenue. I don’t believe that any entrepreneur starts a business because they just want to get to half a million dollars. We all have these big dreams. We’re all trying to build the biggest company that we can. And the truth is that for a small down payment and a bank loan, pretty much anyone can own one the largest 4% of companies in the United States. When you look at those businesses and what they need, it’s entrepreneurs and that’s the business model for acquisition entrepreneurship.
Why is acquisition entrepreneurship relevant right now?
Right now, I believe that there’s a confluence occurring that has never before happened in history. Number one, we have the baby boomers retiring in droves. Baby boomers own more businesses than any other generation in the history of mankind. Today, they’re retiring at a rate of 10,000 per day. Not only is that going to continue for the next 19 years, it’s actually going to increase, maxing out at about 11,700 baby boomers a day.
Second, the proliferation/increase of online marketing is something that, during the creation of all of the successful baby boomer infrastructure, wasn’t there. So, you’ve got online marketing as a key driver to being able to grow value with a lot of old economy businesses. Then, you have the ease of access to capital. Never before in history has capital not been a restraint.
You’ve got an estimated $10 trillion in business value that needs to change hands from retiring baby boomers to the new generation. And with the confluence/meeting/joining of online marketing and ease of access to capital, this is probably going to be the opportunity of our lifetime.
What have you learned from your acquisitions?
In 2006, I bought a book printing company. And it was a really weird time to buy a book printing company. Not only was the industry mature, but it was starting to decline a little bit. And not only was there no one from my generation sort of getting into the industry, but anyone with gray hair was staying out also. It was not an attractive space. Obviously, the internet was disrupting newspapers at that time and tablet computers were just coming out. The month I bought the company, the iPad came out. Kindle was making headlines.
Bookstores started going out of business. It was a really, really ugly time. However, what I did was I looked at the underlying trends in the industry. And what I saw was that because of online ordering, self-publishing was exploding. My numbers are wrong here. But instead of about 4,500 new ISBNs every year, new titles every year, there was over 300,000, I mean it was that drastically.
Digital book printing, which is essentially exalted Xerox machines, were creating a whole new industry which was growing at 30% to 40% every single year for four years. So, I bought a book printing company because it had an existing knowledgeable staff, it had a customer base of 125 to 150 publishing companies, and it had millions in revenue. I didn’t have to start a digital book printing business. I could buy a business with customers, with knowledgeable staff, and everything was already in place. I used the existing cash flow of the business, to pay the loan off that I bought the company with. I also used it to create a digital book printing facility inside the company.
Then, what I did was I took that offering to our existing customer base, and all of a sudden, offered them “just in time” book printing, which number one, it increased the cashflow of our customers. Number two, it increased the amount of titles that they could have up for sale. And number three, it actually increased the gross margin for the printing company because the gross margin on a one-off book is a lot higher than the gross margin on running 5,000 books all at one time on, I’ll say, the offset, the old way of doing it. In other words, being able to buy that infrastructure and then being able to innovate it by paying attention to the underlying trends in the industry is something equally as entrepreneurial as starting from scratch in my opinion.
What is a key takeaway from the book?
Hopefully, when they read the book, they’ll understand the business model of acquisition entrepreneurship. Hopefully, they’ll understand the preparation that they need to take to get ready. Hopefully, they will begin to develop their target statement and understanding what it is that they’re looking for and the characteristics to identify it. And part of the thing that I talk about in the book is, number one, you’ve got to get upstream. You’ve got to start making your own deal flow. So, by reaching out and building those relationships in your community or even with certain online marketplaces as a way to get deal flow directly to your inbox.
From there, the next steps are going to be things outside in the world. Things like getting SBA pre-qualified, running your credit, learning how to put a business plan together so that you can begin to get prepared. And ultimately, we’ve also got additional tools and resources on BuyThenBuild.com to help people in their journey.