Buy Then Build – Book Review
As I prepare to go to the Invest Like a Boss podcast meetup here in Chiang Mai on Jan 3 – I felt I should catch up on some reading about investing and this one was a new one with amazing reviews so I couldn’t help myself.
Buy Then Build is a book about what the author calls a new trend for entrepreneurs – to be Acquisition Entrepreneurs. Check out Buy Then Build on Amazon now.
To start off the book, he makes the case that something like 90% of startups fail, and those that you say succeed simply become small to medium sized enterprises with nothing special. That the ones who win in the startup game are not the entrepreneurs, but the investors. They get to spread their bets across multiple startups and just need one to win, while the entrepreneur is all in on 1 startup with a 90% chance of failure.
So Walker, the author, says to instead skip past the startup phase and buy an existing business with positive cash flow.
It makes sense – as he shows the numbers of failures in this stage is something like 5% (95% success rate) so the complete inverse of the startup phase.
Plus, it seems cheap! Paying 2 to 4 times of SDE (seller discretionary earnings) for a company that already has product market fit and is earning positive cashflow – compare that amount of investment with what you would need to do it from scratch.
The real eye opener for me was that you can finance these acquisitions with the bank. And then pay yourself salary while also paying back the bank loan – and keep 100% of the company /equity (as its a loan not equity investment).
Throughout the book you get step by step instructions and almost the exact wording to use when talking to brokers and the other players in the acquisition game.
My favorite part is that the author says there is tons of opportunity to be creative in these companies you acquire – and that you need to know yourself and your own strengths. Not to look for a company by industry, but more for what suits your needs as an entrepreneur / investor.
And what is even cooler, you can use that cashflow to invest in growth and leverage the existing customer base on a new technology. As all so many times when starting a company you are scrambling to get customers why not by an existing company, get financing, and then plug in your technology idea into it with its existing client base.
Seems like a fun game that can be repeated every five years or so (plugs into a recent post I talked about 5 year plans) and you can focus on your own strengths each time – applied to existing customer bases which need your skill set.
My only concern, as an American in Asia, I probably can’t tap into these bank loan options. But for many of you reading this – if you have good credit and maybe a home to put up and your personal guarantee (as a US person) it can be a great way to jump right into entrepreneurship.