Innovation over revolution: How to buy and grow a business

Originally sent exclusively to The Letter subscribers on September 16. Want to be the first to get my personal newsletter in your inbox every Monday at 7am? Subscribe for free here.

Hey gang,

At the time of writing, I’m finalising a big acquisition this week. My team will be joining me for the handover. As the sellers exit, the management team will transition to us: the proud new owners.

One of two things usually happens: fear of change or excitement for change.?

We have to communicate effectively to alleviate fears and conjure up excitement for the future, we'll keep things running as usual, then gradually make improvements.

Tinkering carefully.?

We prefer innovation over revolution.

Revolution should only happen when you're at death’s door. This business is far from that.

It’s a fantastic company, making plenty of profit. No need for ego to change for the sake of change.

We’ve done this so many times, it’s like making a cup of tea for us.?

Our top team is a collective of individuals who synchronise to make what we do work. I’m not self-made - I’m more like a conductor who needs all the instruments and talented players to work together.

Sure, the conductor gets the applause because they’re front and centre. But the truth is, like most things in life, that there are many unsung talents that?make it all tick.

It’s jolly exciting to complete this deal - it’s taken longer than expected, as these things always do. It’s also great for both our teams and the existing businesses management team as progression will be offered to those willing and able.?

This business generates around ￡10 million in revenue, produces brilliant profits, and has amazing connections that will benefit our existing enterprises.?

These are the deals that really excite me, more than the turnarounds that my younger self?gobbled up. Buying good stuff and improving it 10% is just so much more enjoyable.

Honestly, there are so many good businesses for sale if you know?where to?look.

Learning how to acquire and manage deals is absolutely crucial for long-term success as an entrepreneur.?

This deal completes a year’s worth of work, negotiation, fundraising, and preparation. It’s been mentally?challenging, with?another four deals I am working?on in unison. These will?come together in a spectacular?crescendo as we sail out of 2024.

I’ll tell you more about it in the coming weeks here and on YouTube.

Getting stuff done is one of the key ingredients in the cocktail of entrepreneurship. The bigger the “stuff” you get done, the more stress you’ll handle. It can feel like managing a bipolar disorder.

In essence, the bigger you go, the bigger the highs and lows.

Eventually, you learn to live with it. You develop amazing coping mechanisms. Then the world?serves you up greater challenges?as you become more useful to the universe. How exciting!

Meeting payroll or borrowing a million pounds for the first time seems daunting at first - then looking back with rose tinted glasses you'll be??thinking how small that sum was compared to where you go or you're?at now.

I’m about to sign off on a further ￡10 million of borrowing in the coming 12 months (for commercial property and stock facilities). Those million pound loans look like chicken feed now.

That last line was poignant to write.

Learning the harsh realities of just how long it takes to succeed is an experience for a very select few.

“This time next year, Rodney, we’ll be millionaires.”

The saying should be:

“This time next decade, we’ll be millionaires.”

A decade really is what it takes. It takes 10 years to get a company really thriving.

That’s a fact, and that’s at pace. Many wait for retirement to find a lump of cash.

It’s so sad to have your winnings when you've the least amount of time to enjoy them.

Ten is a funny number that crops up a lot in business. Ten years of practice leads to real mastery in anything.

Ten is a lovely team number. I find teams of this size work well together.

When I do consulting, go to?board meetings, work?with my companies' management teams, and on the podcast, I’ve discovered that if you just have:

• 10 more good leads a week
• 10 more good customers
• 10% more top-line revenue
• 10% reduced costs

…the business explodes?in profitability.

10% is the level of profit most companies achieve after paying a commercial wage to the owner and management team, if paid at market rates.

￡10 million in revenue is when a company starts adding real commercial value.

And here’s the big one:

Look for 10x value in team members.

If we look at the four levels of people who make a company: shareholders, leadership, management, and technicians.

Those on the front line are technicians. If they worked in a supermarket, they’d be stacking shelves or working at the checkouts.

They’re essential for the organisation to generate revenue.

Above them, in a large chain like Marks & Spencer, would be head office, with accounts teams, marketing teams, buying teams, operations teams, etc.

These people are managers and leaders.

If they don’t bring the business 10 times the cost of their salary, you’d have to question whether they’re effective for the company.

As you grow, you’ll be hiring more and more.

Sometimes you’ll strike gold with an absolute A-player. These players can change the direction of a company almost instantly.

They are the rare commodities who bring both skills and the right attitude.

Many companies, however, have B, C, and D players, or worse still, NPCs (non-playing characters).

But this isn’t a video game, and you can’t afford to have hangers-on and NPCs draining valuable cash flow without delivering a return for the company.

That’s why 10x value is paramount.

Do they bring 10 times their salary to the table in either:

• Top-line revenue?
• Research and development?
• Savings and efficiencies?
• Getting things done?
• Ideas and plans?

For example, an accountant might save the business 10 times their salary in efficiencies. A salesperson might add 10 times their salary to the top line.

An effective CEO, like Bob Iger from Disney, might be paid ￡30 million a year but add billions in value by making the impossible happen.

Bob’s like a 1000x cost-value add.

If you have an employee who brings a minimum of 10 times their salary cost, then they’re starting to be profitable.

If they bring more, then they’re highly effective. Such employees must be nurtured, given top positions, and entrusted with more responsibility.

The truth of life is: if you want something done, ask a busy person.

Frankly, they are the world’s most effective people.

In other news, I have been a little poorly this week.

I had a strange condition where I had lettuce growing out of my pants, so I went to the doctor.

He said: "That's just the tip of the iceberg."

Until next week.

To your continued success,

P.S. If you want to learn more about buying businesses and preparing your business to sell, come along to my Masterclass event on 4th November. I’ll detail the precise tactics I use when selling a business, and what I look for when buying one.