Partnership v. Acquisition
The easiest way to "hack" investing with low risk, high reward and ensuring everyone can win.
My investment thesis is based on many principles. However, one of the most important ones that many people need to pay attention to is that acquiring a business is generally worse than partnering with a business.
I attempt to do everything in my power NOT to acquire a business
The reason’s simple.
Generally, there are 3 types of businesses you can purchase:
1). Fixer-Uppers due to lack of resources
2). Stable w/ High Risk Upside
3). Fire Sales
4). Stable w/ High Growth Potential & High Price
I don’t run a private equity fund, so #4 isn’t for me, leaving me to choose from 1-3.
However, in all of those 3 situations, generally acquiring isn’t ideal simply since the number of resources and capital needed to make it a successful business is extremely high.
Further, every time you add a newly acquired business to a portfolio, it creates opportunity loss for the current portfolio, energy loss, and requires finding a new team or core operator.
I’m not making it sound good, am I?
So when does Acquiring make sense?
For me, acquiring makes sense in the following cases when…
I can easily “tuck” what I am acquiring “in” to something else that already exists, which increases the value of the entire business
I have a “segment” of businesses in the portfolio that I’m building with a specific thesis, and I want to bring this business inside
I can easily and, without doubt, add massive value with zero risk. I also ensure I have a perfect operator / CEO to easily grow the company, so I don’t have to use all my time and energy on it
For example: I have a software company, and recently, I acquired a newsletter/media company that compliments that software company perfectly. I cannot have the newsletter and “sponsor” it with the software company.
I could easily and perfectly “tuck in” the media company, which is why it made perfect sense to acquire it.
Another example: I bought a website builder for coaches and consultants, and we’ll be able to build it into my entire ecosystem, allowing our marketing cost for expansion to be zero… click here for the deep dive on that.
Majority of my portfolio (currently 34+ companies, as of writing) are made up rather than partnerships.
When I’m looking at a company, what I’ll generally see is that the person who is wanting to build the business doesn’t want to sell it, but rather, many people try to sell a business because they don’t have the resources to bring it to the next level.
These resources are generally due to a…
Lack of Finances
Lack of Marketing / Sales Expertise
Lack of Operational / Delivery Expertise
Lack of Advisory & Mentorship
And… what would I rather do? Have 100% of a business without the founder or owner involved and having to find someone new?
Simply have a percentage of that business? In these cases, I’d much rather have 20-40% of a business that—with help and some resources—will grow rapidly.
For years, people have paid me a lot of money to help them with rapid growth. Starting in 2019, I simply changed my format of “how” I did this.
This allows for a much larger impact and makes a lot more sense, in my scenario, than acquiring businesses while also allowing for an amazing growth plan.
Further, in these businesses that I’m partnering with, as I’m helping guide their growth rather than just shaking hands and giving cash, I’m getting infinite upside return. On top of this, if they ever want to full exit, I can make that happen. If we ever need to raise money—that’s easy as well.
Thing is—a lot of people don’t like the idea of partnering, even more so those that are the investor or advisor types.
The reason here is clear: Risk.
You can help someone and they can go and run off and thus, if you want to take a partnership approach, you must get really great at partner selection.
Just like in romantic relationships, business partnerships come down to partner selection. So many Entrepreneurial investors don’t go with a partner-first approach—because the journey takes even longer than acquiring.
Generally, before I partner with them, I get to know them for about a year
That’s a long time to be patient, and most Entrepreneurs aren’t great at sitting on their hands waiting for something to happen. However, the best deals happen when you’re patient.
Further, partnering creates opportunities that you likely don’t have the ability to even acquire.
For example: I just signed a deal with a SaaS company to partner with them to launch a new media brand targeting Entrepreneurs. They have a very active community of almost 300,000 people globally. As of December 15th, we’ll be building a media brand on the back of their eCommerce.
I own 49% of this company and I would expect we’ll generate at least $2 million in our first year of business.
They have the audience, the trust, and the brand.
I have a model around media that simply works.
Another example: Tomorrow, I will complete a deal with an online niche education & media company for 30% of the company.
They have amazing potential and what they are missing is the right strategy, the right team, and the right business model. They are generating $1-2M/revenue year and I expect we can easily push a $15M+ valuation within the next 24-36 months based on their potential.
In both of these cases, it would be impossible to do these deals and by partnering I have far more leverage.
There’s no “right” or “wrong” when partnering or acquiring
I’ve found that both seem to be a right fit, when done at the right time. Acquiring is overrated and partnering is underrated.
In both cases, it’s about building the infrastructure needed to support the businesses.
If your partner and can’t add value, it won’t work out.
If you buy a business and can’t add value, it also won’t work out.
The key to success with both is creating systems that build value.
Keep acquiring & investing…