Why Buying Growth Isn't Always the Best Path — Transcript

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1. 0:00You do. My name is John Stoll. From
2. 0:02Arizona. We sell roofing, residential
3. 0:06and commercial. We do right around 30
4. 0:09million a year and we're trying to our
5. 0:11goal is to get to 100 million. Maybe
6. 0:14even more specific to that. We're trying
7. 0:16to drive more EBITDA. Right? We're
8. 0:18trying to put more more net profit. So
9. 0:21whether that's 100 or whether that's 10
10. 0:22million EBITDA, I'd rather shoot for 10
11. 0:24million EBITDA. What's stopping us?
12. 0:27We came into the end of last year with a
13. 0:29goal or strategy to grow through
14. 0:31acquisition and that's kind of why I'm
15. 0:33here. Want to learn the acquisition
16. 0:35space, how to evaluate businesses, how
17. 0:37to evaluate our own businesses. But as
18. 0:39I've gone through the conference, I've
19. 0:40realized that with probably three
20. 0:43tweaks, big tweaks, we could probably
21. 0:45grow organically and get to that 100
22. 0:47million mark in probably a relatively
23. 0:49same amount of time that it would take
24. 0:51to to acquire. So that's what I need
25. 0:53help with. I need you to help us decide
26. 0:55like, you know, do we continue to go
27. 0:57down the road of of acquiring and you
28. 0:59know, allocating funds and resources to
29. 1:02finding businesses or do we take a step
30. 1:05back and focus on the organic side of
31. 1:07the and growth of the business?
32. 1:10>> So the question that um
33. 1:13you're asking is a very classic one,
34. 1:14which is buy or build, right? And um
35. 1:18building is almost always the
36. 1:20better long-term solution in terms of
37. 1:23short-term. If you can get Basically,
38. 1:24it's just such a different business to
39. 1:26do M&A
40. 1:27and I would say that having that as a
41. 1:29core competency, the people who do it,
42. 1:31they come into an existing platform
43. 1:32company and then they're like, that's
44. 1:34all we're going to do. We don't really
45. 1:34care about the business, we're going to
46. 1:36let it stay and then we're going to
47. 1:37acquire, you know, five to 10 sometimes
48. 1:40tuck-ins into that platform and all of
49. 1:42the operational expertise is just
50. 1:45integrating those businesses into the
51. 1:47core business rather than like how do we
52. 1:49improve the business? Acquisition.com is
53. 1:50almost exclusively organic growth in
54. 1:52terms of how we try to drive alpha or
55. 1:54you know, increase above the baseline.
56. 1:57And so for you, I think the question is
57. 1:59and
58. 2:00Layla has this really amazing frame for
59. 2:02strategic problems, which I think I
60. 2:03mentioned to a couple of you guys last
61. 2:04night, which is which problem would you
62. 2:06rather have?
63. 2:08And fundamentally, it's like either path
64. 2:10has problems and I think being able to
65. 2:12accurately articulate what problems
66. 2:14exist also will help you pay down
67. 2:15ignorance tax, meaning
68. 2:18Okay, let's play it out. So, you buy.
69. 2:20What problems are you going to run into?
70. 2:21You're going to run into getting
71. 2:23basically deal flow. So, how do I you
72. 2:25know, I number one is deal flow. Number
73. 2:27two is motivated deal flow because
74. 2:29you can make offers to people, but they
75. 2:31might not want to sell for the number
76. 2:32that you want to want want to buy at.
77. 2:34Um
78. 2:35you might have some issues in terms of
79. 2:36capital.
80. 2:38I don't know if you're planning on
81. 2:38raising capital in order to do that,
82. 2:41which is typically what most M&A people
83. 2:43who are who are trying to go through M&A
84. 2:44have really strong credit relationships
85. 2:46or they have a fund behind them that can
86. 2:48that can provide the liquidity for the
87. 2:49deals. Um or you'd have to get
88. 2:52more kind of creative, I'll call it, on
89. 2:54the deal structure where you have a lot
90. 2:55of owners, lot of cooks in the kitchen
91. 2:57that are all sharing on the slice of a
92. 2:59larger holdco, which can kind of
93. 3:01introduce its own problems as you might
94. 3:02imagine. But, in that situation, the
95. 3:05problems that you're going to encounter
96. 3:06are going to be
97. 3:07good creditors,
98. 3:09raising capital,
99. 3:11and then if you if you are going to be
100. 3:13doing kind of partial deals without
101. 3:14those, the cats and dogs of many people
102. 3:17in holdco having, you know, disparate
103. 3:20opinions about stuff, which there will
104. 3:21be.
105. 3:22The alternative is
106. 3:24what problems exist. Is
107. 3:27are you I'm guessing you're local,
108. 3:29right? So, you might run into kind of
109. 3:30regional caps based on
110. 3:32the number of people or roofs literally
111. 3:34in your area.
112. 3:35So, that would be that's a problem that
113. 3:37you could solve either by expanding to a
114. 3:38new market
115. 3:40or just doing that organically. And so,
116. 3:43in that instance, it would probably be
117. 3:45can we spin up a team or lead gen in
118. 3:48whatever new market we'd you'd to spin
119. 3:51up, number one, and number two, how can
120. 3:53we drive more operational efficiency
121. 3:54within the business so we can drive more
122. 3:56EBITDA per per dollar revenue? And so,
123. 3:59those are kind of the problems that
124. 4:00exist on both path. And so, the question
125. 4:02is really which one do you feel you're
126. 4:03more equipped to solve?
127. 4:05>> Personally?
128. 4:05>> Yeah.
129. 4:06>> Definitely the latter.
130. 4:07>> Organic.
131. 4:08>> organic's probably the way to go. But,
132. 4:10that's just for everybody like kind of
133. 4:11breaking that down, that's fundamentally
134. 4:13how we think through it is like, what
135. 4:14are the problems and what which problems
136. 4:16do I feel more equipped to solve with my
137. 4:17given skill set, resources,
138. 4:19um that I have available to me.
139. 4:21So, if that was the big decision, I
140. 4:23would go build rather than buy.
141. 4:25>> Mhm.
142. 4:26>> Okay.
143. 4:26>> If you like this video and you're
144. 4:27business owner who wants to break
145. 4:28through your current revenue ceiling, I
146. 4:30distilled every lesson from scaling 10
147. 4:31businesses past 10 million and three
148. 4:33businesses past 100 million into a
149. 4:35completely free scaling roadmap that
150. 4:37I've used to go from zero to one, zero
151. 4:38to 10, and zero to 100 plus. And so, you
152. 4:41can click here and you can check it out.
153. 4:42Again, absolutely free, and since you're
154. 4:44business owner, appreciate you, and
155. 4:45enjoy.