You don't need business experience to become a millionaire
Estimated Reading Time: 2 minutes and 58 seconds
30 years ago in my local community two brothers started a mechanic and tire shop just south of the downtown area. They bought the real estate and grew the company to have 6 additional mechanics and 3 tire technicians.
After 30 years and a lot of hard work, they are ready to retire and close up shop. Their shop receives an average of 10 cars per day for regular maintenance, new tires, or mechanical repairs. The average customer will spend $500 while their car is in the shop.
10 cars * $500 per car = $5,000 per day
This little shop was doing $1,300,000 a year in gross revenue.
At a 25% profit margin, the owners were clearing at least $325,000 a year from the business. Not bad at all.
In 2022 a local tire company came in and acquired the shop from the two brothers. If we follow standard valuations of 3X seller discretionary earnings(SDE), and then we factor in the value of the real estate, this led to a great payout.
$325,000 * 3 = $975,000
I guarantee the real estate was worth at least $700,000. They own 3/4 an acre in one of the most desirable parts of town.
$975,000 + $700,000 = $1,675,000
These two brothers will easily retire millionaires. Could they have maximized their outcome by doing a few things differently? Absolutely. But it’s still very impressive considering they had 0 business experience when they started.
Lucky for you, you read The Steel Road, so you are one step ahead.
Here are a few things they should have done to grow their business more and lead to a bigger exit.
Advertising
I never once saw an ad for their shop to bring in new customers
Embrace technology
I used to bring my car in and they would write notes on a yellow legal pad and hand it to the mechanic who would be working on my car
Offering add on services systematically
I’d be willing to bet if they did these things from the beginning they could have exited after just 10 years instead of 30.
The company that bought them out are doing these things religiously. They buy radio and local TV ads. They remodeled the showroom to be more modern and added computers and TV screens. I took my car in and was offered fuel injection service, new tires, and other maintenance add-ons.
If your goal is to exit one day, start to think like the company who will be buying you out.
Now I know what you are thinking, what happened to Tuesday Terms? We were looking forward to that!
Never fear dear reader, I am tying it all together. In last week’s poll the term Acquihire won in a landslide.
Before we dive into this week’s term, be sure to vote for next week!'
Acquihire
Continuing our example of the two brothers who sold their tire shop, the two brothers each agreed to stay on and continue working with the acquiring company for at least 1 year.
This is different than a true acquihire, because the acquiring company bought the tire shop for the business, not for the sole purpose of hiring the employees. This acquisition is more similar to an earn out period.
In an acquihire situation, the acquiring company is specifically targeting the talent that the selling company can offer.
It’s a popular strategy with tech companies like Google, Facebook, and Twitter. Generally, when a company has developed a particularly innovative product, their team is the only one who can handle the fulfillment of the product.
Safe to say, with non-tech businesses you don’t have to worry about acquihiring. Your game is to do something proven and boring while optimizing for efficiency and a great customer experience.
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