Investing in other businesses and your Way to FastLane Millions?

[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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[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.

 

[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]

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.

Best way to learn is to jump in....

!!!!!

 

[Dubidu]

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.

Really valuable info SteveO; appreciate you taking the time to set all this out. Thank you.

 

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[Dubidu]

Best way to learn is to jump in..... ask @Greg R

He has probably learned more in the last week running a business than in the last year talking about business.

Not sure how? Bird dog / find available deals. Then hit up someone on the forum and see if they will mentor you through.

Now, less talk, more deal finding!

On it ZCP One question though: I'm a Brit and I don't understand the vernacular "Bird dog"? What does it mean??

 

[Dubidu]

Most of my business investments are passive investments (angel investment where I'm not actively engaged in the business). So, I'm definitely not an expert on buying businesses. That said, ultimately, the value of a business boils down to its NOI (net operating income). You increase NOI by increasing revenue and/or decreasing expenses.

Increasing revenue is pretty straightforward -- you sell more product (improved marketing, sales, distribution). Decreasing expenses is more nuanced -- you can reduce COGS (cost of goods sold) or improve management to reduce operational expenses.

A typical business will be valued at between 3 and 10 times NOI, depending on the industry, the maturity of the business, the growth potential, etc. So, for every dollar you can increase NOI, you can increase the value of the business by $3 to $10. That's where your money is made by purchasing and overhauling a business.

That's the three paragraph overview...happy to answer questions (if I can), but to go into all the details would require several books...

Thank you! I don't think I'm at the angel investing stage - my idea (the one I'm working on myself) is to improve a core product used by pretty much everyone! The potential is huge and provided I can get it done and no-one else comes to market first (which is what happened with my initial idea) I should be in the Fast Lane/home and dry.

However, having worked with a number of clients I just found a common theme that I simply hadn't considered: that of being in the slow lane (i.e. having a job already) but investing in a business you know has potential which increases your wealth exponentially and moves you by default almost to the Fast Lane. I wanted to explore that with others on this thread. The difficulty I have noted is that with clients it's not always appropriate to ask dumb questions like: how did you identify the business in the first place? Here I'm hoping no-one is judging me too harshly for the same question...

 

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[Cruze]

AWESOME thread, really interesting! Thanks very much to @SteveO for his interesting posts.

Fix, add value & flipp the business again is a great "fastlane strategy" and a very much hedgefonds & investment and private equity companys do this (for example "AURELIUS from germany").

I like this strategy but you need a lot of money to buy a disstressed company.

 

[Cruze]

Congrats @Get Right ! Nice to read. Are your own active in the daily business?

 

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[Dubidu]

This is true. But there are options here as well.

If you have a track record, you can likely get money from investors. More opportunities come up during downturns. People can get pretty motivated when they are worried about losing their businesses. Seller financing comes into play.

The strategy that I really like is to do whatever it takes to put money together. The original poster here has earning potential and is likely a good candidate for what she is trying to do.

Wow thank you so much SteveO - I'm having a crappy day and checked in to see such a lovely post; to see that you think I have earning potential and I'm likely a good candidate for what I'm trying to do You have no idea how much that means to me...

 

[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?

 

[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?

 

[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?

 

[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

 

[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]

I used Google and found this....
A real estate investing term that refers to someone who spends their time trying to locate properties with substantial investment potential. Usually, the intent is to find properties that are distressed and selling at a discount that can be repaired or remodeled and sold for a sizable profit.

What deals or business opportunities have you found since my last post?

Many real estate investors employ bird dogs to locate properties for them. In the single family home market, it is a very tedious task. Bird dogs do this for a fee as they don't typically have the funds to take down the deal.

 

[Dubidu]

I used Google and found this....
A real estate investing term that refers to someone who spends their time trying to locate properties with substantial investment potential. Usually, the intent is to find properties that are distressed and selling at a discount that can be repaired or remodeled and sold for a sizable profit.

What deals or business opportunities have you found since my last post?

Ah - OK. We have the equivalent here but their fees for sourcing properties eat into any eventual profit margin. Since our last discussion I have found two businesses of interest:

1. One is a cloud based (so technically it is a technology based venture - see my reservations below) but the fundamentals are sound. The original company couldn't make it work (I have to dig deeper as to why operationally it went into 'distressed' mode) before seeing if I can make it work.

2. Another undervalued (Buffett style) rather than distressed. If e.g. for illustration: I invest $1 now I'm pretty sure it will be worth $3 guaranteed minimum shortly given its sector (and it's not tech as that tends to suffer from hyper-valuation in my view; I don't understand the revenue model of e.g. Instagram etc. other than it is a influencer aka advertiser model). The $1 has potential to be worth $6 rather than $3 so the upside will be worth it.

I'm definitely not a "hypothesise on the Forum and not take any action" type; I'm consistently taking action and applying principles learnt (to all areas of my life) but I don't assume I know *everything* and love the Forum to sense-check and hopefully contribute value and learn from some masters! The one thing I have recognised is that I don't have a circle of excellence yet (my friends don't have the mind-set I do) so the Forum is turning into one for me! Thank you for taking the time to reply; it's been really valuable for me already in the short time since I've joined

 

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[Dubidu]

Given that, I think you should liquidate everything you own, borrow as much as you can, and invest every single penny...

You don't get 3x GUARANTEED minimums very often!

Ha - I've been looking at this company for a while. I think its undervalued and the sector is one I understand unlike say tech where I don't understand the hyper-valuation based on what seems to be no-revenue model. The output of this co. affects/used by a large part of the population. They have a solid pedigree of management and it wouldn't surprise me if they IPO in a few years. I wouldn't bet the farm on it nor can I invest enough to guarantee millions in return like my initial example in the thread did but all the metrics check out - worth the risk in other words...

 

[Cruze]

To address this I've joined an entrepreneur's club and of course this forum which has been invaluable even in the time since I joined but it would be great to find out how to increase my network in the entrepreneur arena. Any thoughts always welcome

Hehe yes, thats very difficult. I´ve got a few friends overall in germany, but they are far away and we can only write via fb, email or call. In my near location I found a very nice contact through this forum to an other fastlaner (best regards to @FineDay ) that is very helpful for a personal exchange!

Maybe you find people like you in local entpreneur facebook groups ?

 

[NanoDrake]

Given that, I think you should liquidate everything you own, borrow as much as you can, and invest every single penny...

You don't get 3x GUARANTEED minimums very often!

WORD.
If anybody could point me to a 3X "GUARANTEED" return, I would sell even my underwear

 

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