Investing in other businesses and your Way to FastLane Millions?

[Dubidu]

Haven't seen this covered in other forums: whilst I am pursuing my own ideas I have recently come across people (I know them through work) who did the following:

1. Bought companies in administration/receivership (i.e. distressed). Two guys invested 300,000 into the business (telecoms) and turned it around. They are now exiting the business and have had offer of circa 16m-18m. It took them over the 6 year time frame the Fast Lane espouses but not much - less than 10 years. The other has bought a Spanish company about to go under (he and his "co-founder" invested 170,000 in total). They are likely to have a multiple of low millions at the very least based on the concept of the company.

2. Invested in an AIM (Alternative Investment Market - a sub market of the London Stock Exchange) listed company. He was already wealthy (an investment banker). He bought shares in the company for 1m and they are now worth (18 MONTHS later!) 6m.

It's an open thread/all thoughts welcome but starting point I guess is: does anyone know others who've done this? And how do you go about identifying the right company? The risks are obvious: you make a bad punt and it goes no-where but the upside to something that is not squarely in the FastLane (i.e. starting your own business) yet has the potential to get you there in the same time frame. Look forward to reading everyone's thoughts

 

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[ZCP]

Many of us invest in multiple businesses. You need to understand you own motivations, areas of interest / expertise, and required ROI. Then you go in search of deals and let others know you are available for those deals. Learn to read P&L's, balance sheets, and how to summarize a business based on sales / margins to figure out not only its value, but its @SteveO value play.

 

[NanoDrake]

Good idea to invest in somewhere you can add a difference, but never ever forget the infamous "circle of competence"...
can you flip an IT company?

do you know anything about e commerce?

;-)

 

[ay47]

Many of us invest in multiple businesses. You need to understand you own motivations, areas of interest / expertise, and required ROI. Then you go in search of deals and let others know you are available for those deals. Learn to read P&L's, balance sheets, and how to summarize a business based on sales / margins to figure out not only its value, but its @SteveO value play.

Could u elaborate or link to the SteveO value play? I've been evaluating some businesses lately.

 

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[Dubidu]

Many of us invest in multiple businesses. You need to understand you own motivations, areas of interest / expertise, and required ROI. Then you go in search of deals and let others know you are available for those deals. Learn to read P&L's, balance sheets, and how to summarize a business based on sales / margins to figure out not only its value, but its @SteveO value play.

Agree and yes I know how to read a balance sheet/P&L etc. So I'll give you the example of the two guys who invested in failing telecoms business for 300,000 and now entertaining offers of 16-18m. One of them is an engineer (no prior telecoms experience) and the other started life in recycling! Proper salt of the earth types. They haven't told me how they identified that particular business but I wonder to what extent it was a combination of instinct/intuition and value? They knew for example, that the business had a couple of corporate clients (multi-national services businesses). They also knew they could trim costs as that is where the business was failing. That is what they did. They bought it before it went completely bust and turned it around by adding value and trimming costs. I suppose I'm more interested in how they managed (not having operated strictly in that sector before) to identify the business in the first place?

 

[SteveO]

Thanks for the heads up @ZCP . This is a great post.

The risk would be greatly minimized if you had a strong understanding of the field. You can also be successful with a strong business knowledge. Put the together and the sky is the limit.

There is NO shortage of mismanaged businesses. The trap is if you think you can operate better than the last person but can't.

I have witnessed a number of businesses go down the toilet vortex trying to cut existing expenses. I usually focus on injecting money to increase income. Efficiencies come later. Not cuts, but pure process improvements.

People are cheap by nature. I find that most mismanagement comes from spending cuts.

Prosperity comes from growing income. If you can make that happen, the sky IS the limit.

 

[Dubidu]

Good idea to invest in somewhere you can add a difference, but never ever forget the infamous "circle of competence"...
can you flip an IT company?

do you know anything about e commerce?

;-)

NanoDrake - see my reply to ZCP where I give the example of the two guys who identified a business without having strictly operated in that area before. It's part of my questions/thoughts on this forum! Would welcome your views, as always

 

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[Dubidu]

Thanks for the heads up @ZCP . This is a great post.

The risk would be greatly minimized if you had a strong understanding of the field. You can also be successful with a strong business knowledge. Put the together and the sky is the limit.

There is NO shortage of mismanaged businesses. The trap is if you think you can operate better than the last person but can't.

I have witnessed a number of businesses go down the toilet vortex trying to cut existing expenses. I usually focus on injecting money to increase income. Efficiencies come later. Not cuts, but pure process improvements.

People are cheap by nature. I find that most mismanagement comes from spending cuts.

Prosperity comes from growing income. If you can make that happen, the sky IS the limit.

Absolutely agree. Using the telecoms guys example: they identified obvious costs (the existing business was paying too much for the infrastructure). They also streamlined staff. They have 'global' presence: UK, US, APAC but operate with less than 20 staff...! Partly the business is cloud based anyway but they certainly were able to identify where costs could be reduced before injecting a lot of cash.

 

[Michael N]

Haven't seen this covered in other forums: whilst I am pursuing my own ideas I have recently come across people (I know them through work) who did the following:

1. Bought companies in administration/receivership (i.e. distressed). Two guys invested 300,000 into the business (telecoms) and turned it around. They are now exiting the business and have had offer of circa 16m-18m. It took them over the 6 year time frame the Fast Lane espouses but not much - less than 10 years. The other has bought a Spanish company about to go under (he and his "co-founder" invested 170,000 in total). They are likely to have a multiple of low millions at the very least based on the concept of the company.

2. Invested in an AIM (Alternative Investment Market - a sub market of the London Stock Exchange) listed company. He was already wealthy (an investment banker). He bought shares in the company for 1m and they are now worth (18 MONTHS later!) 6m.

It's an open thread/all thoughts welcome but starting point I guess is: does anyone know others who've done this? And how do you go about identifying the right company? The risks are obvious: you make a bad punt and it goes no-where but the upside to something that is not squarely in the FastLane (i.e. starting your own business) yet has the potential to get you there in the same time frame. Look forward to reading everyone's thoughts

This is actually how I acquired my first step to the fast lane.
I bought a dying kava bar in tallahassee and flipped it.
I created a new atmosphere,
Set up a credo,
Fired all the staff and only hired people my gut told me too (I turned down lots of people with degrees, and hired people who knew how to talk and create relationships)
And have slowly started becoming the industry leader.
I'm actually about to change the name.
It went from being a bar that brought in $200 a night to $1200 a night
We now have a second location and a franchise.
I only spend about ,$37,000 on it too.
I now have a steady stream on about $3,000 going into my account every month. And since I have managers and an awesome staff who is incredibly loyal and share the same values as me, I'm now able to focus all my energy on my other buisneses I'm starting. I think it's an excellent way (if you do it right) to start off.
But be ready to put in massive amounts of time in the beginning. It was pretty normal in the beginning stages to put in 80-90 hour weeks
But now I go in there for a hour or two a day to check on things and hang out.

 

[SteveO]

NanoDrake - see my reply to ZCP where I give the example of the two guys who identified a business without having strictly operated in that area before. It's part of my questions/thoughts on this forum! Would welcome your views, as always

There are people that are operation experts. They can evaluate businesses they know little about. This is a unique but powerful skill.

Not to brag but I did it. Purchased a golf course without knowing anything about the business. Increased income from 950k/ year to 1.45m in 2.5 years.

 

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[SteveO]

Could u elaborate or link to the SteveO value play? I've been evaluating some businesses lately.

The value play referenced applied to apartments. Steve Berges wrote a book about it called the complete guide to buying and selling apartment buildings. There is probable a better book out there for business in general.

 

[ZCP]

It is what @SteveO has opened my eyes to ...... it is not necessarily the income / profit that is the value in the deal (although those are nice!)...... it is the simple investment / influx of cash and knowledge and systems that can SUBSTANTIALLY increase the value of a company for a sale exit ....... Steve did it with apartments .... I am trying to open my eyes to that way of thinking with businesses ......

 

[ay47]

The value play referenced applied to apartments. Steve Berges wrote a book about it called the complete guide to buying and selling apartment buildings. There is probable a better book out there for business in general.

Thank you. If you could think of a book for evaluating general business, that would be very handy. Would love to know more about the topic. Haven't found a lot on the topic through my own searches.

 

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[SteveO]

Thank you. If you could think of a book for evaluating general business, that would be very handy. Would love to know more about the topic. Haven't found a lot on the topic through my own searches.

The concept is simple. Look for a business for sale that is not making money. Evaluate it to see if it can make money. Buy the business with all its assets for pennies on the dollar. Implement the money making part. Sell at max value and repeat.

The hardest part is understanding the evaluation phase. That may be where you want to focus your learning. The next hardest part is implementation. This you learn with time and effort.

 

[Dubidu]

There are people that are operation experts. They can evaluate businesses they know little about. This is a unique but powerful skill.

Not to brag but I did it. Purchased a golf course without knowing anything about the business. Increased income from 950k/ year to 1.45m in 2.5 years.

That's phenomenal. Can you elaborate on becoming an operations expert? How did you go about learning this powerful skill?

 

[ZCP]

..... This you learn with time and effort.

And getting your a$$ handed to you a couple of times!

 

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[Dubidu]

This is actually how I acquired my first step to the fast lane.
I bought a dying kava bar in tallahassee and flipped it.
I created a new atmosphere,
Set up a credo,
Fired all the staff and only hired people my gut told me too (I turned down lots of people with degrees, and hired people who knew how to talk and create relationships)
And have slowly started becoming the industry leader.
I'm actually about to change the name.
It went from being a bar that brought in $200 a night to $1200 a night
We now have a second location and a franchise.
I only spend about ,$37,000 on it too.
I now have a steady stream on about $3,000 going into my account every month. And since I have managers and an awesome staff who is incredibly loyal and share the same values as me, I'm now able to focus all my energy on my other buisneses I'm starting. I think it's an excellent way (if you do it right) to start off.
But be ready to put in massive amounts of time in the beginning. It was pretty normal in the beginning stages to put in 80-90 hour weeks
But now I go in there for a hour or two a day to check on things and hang out.

Excellent! Can you elaborate starting at the beginning? What made you invest in that particular dying bar? Were you looking to invest? Was it a sector you already operated in? How did you see its potential?

 

[SteveO]

That's phenomenal. Can you elaborate on becoming an operations expert? How did you go about learning this powerful skill?

I'm sitting on a beach in San Diego this week and typing responses on my phone. Will elaborate next week when I get home.

 

[ay47]

The concept is simple. Look for a business for sale that is not making money. Evaluate it to see if it can make money. Buy the business with all its assets for pennies on the dollar. Implement the money making part. Sell at max value and repeat.

The hardest part is understanding the evaluation phase. That may be where you want to focus your learning. The next hardest part is implementation. This you learn with time and effort.

Understood. I understand some about evaluation through value investing books. The process is somewhat similar. But I can't help but feel this is pure bean counting. It doesn't take into account "potential" of the business.

I guess the best way is to post a follow along thread when I start my evaluation. See if pp can help me pick it apart.

 

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[Dubidu]

I'm sitting on a beach in San Diego this week and typing responses on my phone. Will elaborate next week when I get home.

I'm very jealous re: beach in SD! Please do elaborate and look forward to hearing more of your thoughts next week

 

[SteveO]

Perhaps @Gary can chime in as well. He owns a nightclub that he recently remodeled a section to capture corporate events.

He can't reply until later though. After he meets me at the beach followed by his massage appointment. Tough life...

 

[Dubidu]

Perhaps @Gary can chime in as well. He owns a nightclub that he recently remodeled a section to capture corporate events.

He can't reply until later though. After he meets me at the beach followed by his massage appointment. Tough life...

OK SteveO you can stop rubbing it in now...! Enjoy ;-)

 

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[Michael N]

Excellent! Can you elaborate starting at the beginning? What made you invest in that particular dying bar? Were you looking to invest? Was it a sector you already operated in? How did you see its potential?

I saw the industry as a whole, and the people who owned it, and was displeased. I saw how much potential the product could have, and i knew how to create an atmosphere. i had only been a patron to the bar for about 2-3 months, but i knew i could change everything about the industry. kava bars in general are pretty shitty. people before marketed to losers who wanted to party and do drugs, i marketed to students and young professionals, thus raising the barrier to entry. before you could wear a tank top and sandals to come to the bar, and give off an overall creepy vibe, and you would fit right in. frat kids played fifa and screamed at the t.v.
now most that come in are young professionals and business professionals (even the mayor came and loved our mission and what we stood for.)
I got rid of fifa so fast it would make your head spin.
i saw the culture as a whole, and knew i could make a difference. it all comes down to the fact that the "old shop" had no vision, care, or potential. but if you add some passion, diligence, and a vision (something to attain too) you can go pretty far.
but you have to recognize potential. if a business is failing, and they're doing everything right, or even most things right, i do not think theirs much you can do for it. its a flop.
but if a business is lacking that "spunk" you know you can give it to make it stand out, then go full sails ahead.

 

[Late Bloomer]

Growth through acquisition has been a winning strategy for many business people and companies. Warren Buffet, Dan Pena, Art Hamel, and Felix Dennis have all written great material about how they made this work for them. With your experience as a business-savvy attorney, I think it could be very profitable for you to let your clients know you'd be happy to spread the word about people who want to buy businesses or people who want to sell businesses (assuming there's not a securities or business brokerage law that would prevent you from doing so).

Also, most giant tech companies have made significant growth through acquisitions. Examples include Skype, Minecraft, Hotmail, Beats, NeXT, Android, etc.

Not sure if you'll see this reply at all, or if you have me on ignore because you dislike an older widower's perspective on your dating thread.

 

[Gary]

Perhaps @Gary can chime in as well. He owns a nightclub that he recently remodeled a section to capture corporate events.

He can't reply until later though. After he meets me at the beach followed by his massage appointment. Tough life...

Ahhh, @SteveO, sharing my secrets of a fantastic Wednesday.

PLUS, I got new tires on my truck. Add it all up, that's a hall-of-fame weekday.

What Steve is alluding to is that I took some unused land behind my nightclub and created a daytime/early evening business and social events space. Think BLEISURE (business + leisure). Purpose: to capture a different audience in order to greatly increase my income. Additionally, when I go to sell the business, I'll be able to get considerably more rent now that the outdoor space is developed and licensed to serve alcohol.

 

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[Dubidu]

Ahhh, @SteveO, sharing my secrets of a fantastic Wednesday.

PLUS, I got new tires on my truck. Add it all up, that's a hall-of-fame weekday.

What Steve is alluding to is that I took some unused land behind my nightclub and created a daytime/early evening business and social events space. Think BLEISURE (business + leisure). Purpose: to capture a different audience in order to greatly increase my income. Additionally, when I go to sell the business, I'll be able to get considerably more rent now that the outdoor space is developed and licensed to serve alcohol.

That sounds a bit more "obvious" in a way - you realised you had land at the back of your existing business that could be up for grabs and found a solution to make use of that. I suppose my thread is more how one would go about acquiring a business/stake in a business where there doesn't seem to be existing knowledge: SteveO's example of the golf club and his operational knowledge which turned it around for him (and obviously the two examples I gave at the start of this thread). This in turn results in you joining the FastLane in a non-traditional FastLane way: i.e. you didn't set up the business but rather identified the opportunity to flip one and the skills THAT involves. Hope that makes sense!

Really interesting to hear your story though so thank you for sharing

 

[SteveO]

Being able to read balance sheets, profit and loss statements, and other financials is important... for fine tuning and evaluating. If they are not your numbers, they are likely only worthy of the fireplace. Numbers are ALWAYS manipulated for the benefit of the person presenting them.

So, not only are they important to read, they are important to understand for transparency. You need to be able to forecast your own operations. Most people err significantly in the direction of a perfect world. We don't live in one. Expenses occur...

This is all best learned through experience. How do you get this? Practice. Buy a small business. Implement your plan. Learn....

Commercial properties are businesses. They are backed by the real estate. But the money making part is a business. I like the business being backed by assets. But those assets can be a liability if you cannot operate them properly.

I have done drawn out cap rate rants in the past. The explanation of why I don't use them does not mean that they are not important tools for evaluation. They show the math!!!! It shows where the gains come from. Without it, you cannot see the actual opportunities for making money. Do you want to make 6% or 200% annually? Learn the math and look at the concepts.

I have gone into a lot of detail in the past on this forum only to have the information fade off into oblivion. It is not what most people here are looking for. There are plenty of places to find it. Do a search on cap rates here or on google.

Learning them does not give you strategies though. That is the first step. Strategies come afterward. I learned all that was needed through books. I have also stated those titles 30 times here.

I hate to say this but so many people focus on cashflow here and do not care about other strategies unless it relates to amazon. So I have become a dinosaur on this site.

But even those that do real estate here don't seem interested in the message. Cashflow is small potatoes. It has its place but there are other strategies as well.

 

[Dubidu]

Being able to read balance sheets, profit and loss statements, and other financials is important... for fine tuning and evaluating. If they are not your numbers, they are likely only worthy of the fireplace. Numbers are ALWAYS manipulated for the benefit of the person presenting them.

So, not only are they important to read, they are important to understand for transparency. You need to be able to forecast your own operations. Most people err significantly in the direction of a perfect world. We don't live in one. Expenses occur...

This is all best learned through experience. How do you get this? Practice. Buy a small business. Implement your plan. Learn....

Commercial properties are businesses. They are backed by the real estate. But the money making part is a business. I like the business being backed by assets. But those assets can be a liability if you cannot operate them properly.

I have done drawn out cap rate rants in the past. The explanation of why I don't use them does not mean that they are not important tools for evaluation. They show the math!!!! It shows where the gains come from. Without it, you cannot see the actual opportunities for making money. Do you want to make 6% or 200% annually? Learn the math and look at the concepts.

I have gone into a lot of detail in the past on this forum only to have the information vanish into oblivion. There are plenty of places to learn it. Do a search on cap rates here or on google.

Learning them does not give you strategies though. That is the first step. Strategies come afterward. I learned all that was needed through books. I have also stated those titles 30 times here.

I hate to say this but so many people focus on cashflow here and do not care about other strategies unless it relates to amazon. So I have become a dinosaur on this site.

But even those that do real estate here don't seem interested in the message. Cashflow is small potatoes. It has its place but there are other strategies as well.

Thanks SteveO; I hope you had a good break in San Diego! I can read a balance sheet and commercial real estate I have already explored (agree with all you've said and will look at your other posts re cap rates). I'm interested in hearing more about your golf course purchase because as you said you didn't know much about it - what made you choose that business? How did you identify it? What was 'wrong' with it? What operational skill/strategies did you apply to start to turn it around? Did you get someone else on board to help?

 

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[SteveO]

Thanks SteveO; I hope you had a good break in San Diego! I can read a balance sheet and commercial real estate I have already explored (agree with all you've said and will look at your other posts re cap rates). I'm interested in hearing more about your golf course purchase because as you said you didn't know much about it - what made you choose that business? How did you identify it? What was 'wrong' with it? What operational skill/strategies did you apply to start to turn it around? Did you get someone else on board to help?

I'm not an expert at business evaluation. The expertise really lies in commercial property. There is a lot of crossover in the evaluation.

We were interested in the golf course as a retirement strategy. Our plan was to relax and play golf. I told a broker that I was interested in a course that was making cashflow. That is not what he brought us though.

There is a long post on this here: GOLD! - Margaritaville (I've Bought A Golf-Course!)

We did not do a perfect job in our evaluation. Pump stations, irrigation, equipment costs were a bigger challenge than our plan called for. But, we attacked those problems with all our effort.

We did not put money into nice little things at first. The entire focus was on making the course playable with the best fairways and greens in the city. That has happened and more play has come our way as a result.

My wife and I did this on our own. We have both worked our asses off. Not the relaxing retirement we wanted.

We did get someone on board to help though. Our director of golf and course superintendent came to us from a competing golf course. They asked to be part of what we were doing. We were happy to hire them. They get decent salaries and bonuses on the income.

It was still the same process as I talked about. Increase NOI which increases the value.

One local course went out of business recently. Our biggest competitor is losing money and directly targeting us in their advertising and pricing. It is not working for them. We are gaining play while they continue to drop.

 

[SteveO]

I wish I had more information on business evaluation. @JScott could chime in with his expertise if he has time. @biophase has a lot of experience with evaluating online businesses.

For me it is the ability to see where something is at and be able to determine where it can go. Your posts have a couple of great examples.

When I was finding commercial/apartment deals, there was a team in place. They knew our goals were to fix, increase rents, improve tenant base, SELL and move on. I had two full time rehabbers and two office managers that understood the businesses. I had a part time accountant that aided the office managers.

None of these participants in my business saw the financials that I worked with. I kept information on numbers regarding purchase and sale to myself. They kept all the operational numbers.

As a team we would assess the product that I would find. I understood that business to the point that usually a visual inspection of rents, renters, location, and condition would give me everything that I needed to put together a plan and determine what the property was worth to me. There was a due diligence process applied. I cared very little about the present and very much about the future.

I did not always finish the rehabs or re-tenanting. Frequently, the buyers could see what I started and feel that they could finish. I left a little meat on the bone so the buyer could make some money as well. But, I took plenty of profit.

The plans for apartments were always similar. I had a blueprint, location, and general plan for each place.