← Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
Buy vs Build: The Fastest Way to Grow a Home Service Business
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One of the biggest opportunities out there today is buying a business. Periods of uncertainty like 2000 and 2001, and today more businesses are started during economic downturn because people still need to pay their mortgage, they still need to live their life. And if there's record layoffs happening, we have to be able to move forward. Today we're going to be talking about how do you get prepared to buy a business? Should you be buying a business at all? And what's the pro and con of starting versus buying? We've been releasing episodes in our podcast where we've talked about the businesses that we bought this year. We've bought three. And I've had friends text and call and reach out and say, hey, I'm thinking about expanding into this new market, or I'm thinking about adding this service. How do you think about buying versus starting a business? So that's the question that we're going to be answering today. To try to reframe this question, I think it's important to acknowledge a couple of things. One, entrepreneurship is the same thing as buying a business. My friend Walker Deibel wrote a book called Buy Then Build. It's an incredible book, and it really helps frame this psychology of you can buy a business and then go build that business, and that's entrepreneurship. It's also potentially an easier path to entrepreneurship because you are starting off day one with revenue. You're starting off day one with customers, you're starting off day one with a team, which is much easier than starting off day one with nothing. As you buy a business, you're still doing a lot of the same stuff you were going to be doing. You're still leading people, managing chaos, making sales, fixing problems. You just shortcutted the first couple years. Over the years, we've started a number of businesses and a number of projects. And consistently, the hardest thing is that first employee, that first sale, that original infrastructure. So when you can walk in day one and the business already has all that stuff, it is much faster. Overwhelmingly, I think that the easiest path is you just go buy something in Y City and you're roughly going to spend the same amount of money. The way that I would think about this is if I have to spend $1 million on this business versus $1 million of marketing, well, the million dollars of marketing, all it got me was marketing. I still have to hire people. I still have to make the sale. I still have to get vans, I still have to get rent. I still have to do all of those things. But if I go buy that Business for a million. It probably has all of that already. And that's what we've done three times this year. We've moved into a new city, we bought a brand inside that city, we've added our systems in playbook and then the business started growing and it shortcutted years off of our growth. Said a little bit differently. The hardest part of a business is the zero to one. And if you can shortcut all of that by two or three years, it's the easy answer. Buying versus building are just different types of risk. There's much more risk associated with buying. You're probably bringing on some debt. You're bringing on HR problems you might not be aware of. You're bringing on customer problems you might not be aware of. There's a lot of other risk associated. This isn't a free easy pass. It's sort of like starting on second base. We're not buying a perfect business. We are buying problems that have cash flow. My job is to look at your business and figure out how I can make more money than you do. I'm going to walk in and I'm going to analyze what's broken, what could be working better? Can I fix it? Can I improve it? You walk in and you look for what's broken. Because if something's broken, it is opportunity. It's not a reason to run away. Some of our best deals over the last 10 years of doing this have been broken businesses. They were fundamentally broken. And we walked in and we could roughly fix most of the problems in those first 30 days. Now here's a little bit of a readiness check to see are you ready to buy a business or are you ready to expand your business? First one's leadership. Can you operate the business or can you lead or find someone who can? How do you give a branch to a general manager that you know can trust and will do a great job with your team, your brand and your money? Now, you don't need to be an expert in the trade, they might not need to be an expert in the trade, but they do need to understand the business. They need to understand how it works. And that is harder to find than you would think. Second is do you know how to get customers? Do you know how to market? Do you understand Google? Do you understand meta? Do you understand the channels that drive this business forward? And if you're expanding geographically, do you understand the channels that drive that market forward? What information do you have so that you can confidently say, I can launch in that market and we will do A great job. Here's a big one here. Can your business handle fluctuation? Can it handle uncertainty? When you go to buy or launch a new location, you're going to be investing dollars, you're going to be investing time and revenue is going to fluctuate, employees are going to leave, things are going to break. And your core business, or if this is your core business, has to be able to withstand that shock. Number four, do you have access to a buffer or additional capital of any time it if you're buying a business, you're probably going to need to flow some extra cash in there. How are you going to support it? I don't know. But where are you going to get the extra cash? Number five, potentially the most obvious. But do you actually want to run this business? You can just go hire an operator and walk away forever and never have to actually run your business. Just buy a business, hire an operator. That's ridiculous, right? Like if you own it, it is your business. That operator can quit any day of the week and you are the one running that business. And you're either going to run, do a great job or you're going to run into the ground. But you have to be prepared to run that business, not just own it. Okay, we're going to talk about buying versus building. I think that the best in class businesses do both. I don't think this is either or the best in class businesses have a really effective M and a strategy to grow inorganically and they are powerhouses at marketing and sales and deploying into new markets organically. Starting a business from scratch makes sense if you have time, but not money. If you want to learn from zero, learn all the steps, learn all the processes and most importantly, you are okay going slow, so you're going to trip and fall a lot. Buying a business makes sense if you want or need speed. If you want to be in a market in six months, buying is faster if you have capital or access to capital easily. Buying is a cheat code if you have a playbook to improve an existing operation. If you run a franchise, if you run a company like mine, if you know how to do this and you can go find companies that don't, it's easy. People are asking a lot about, hey, what do you think about organic expansion? What do you think about buying? How would you do it? And the answer is I would buy. Currently, I would buy. I think that that answer is going to change over time. Like I just said, I think best in class companies do both. But right now, to me it feels less risky to just go buy a business in a market. We get to start at second base. We get to have a leader already in place. We have a team already in place and day one there's revenue. And I like that. So the way that I like to think about it is currently we are acquiring. I'm sure in the next few years we will start expanding organically to fill in the gaps that we can't find an acquisition target. But my first inclination as I think about a new market is to acquire into that market. I would rather improve what is already there with our playbook than have to invent it from scratch and trip and fall a lot and waste time. Here's what you should do next. Go buy. Buy. Then build. Go buy. HBS's guide to buying a Small Business and consume Them. There's a lot of content out there on our channel. Our podcast is all about this on how to run the business once you buy it. Start looking at deals through biz by sell. Start contacting brokers trying to understand the industry that you're thinking about and what's a reasonable price and what should be the playbook. We've had people come through our business for years that are considering buying into the industry and the doors are open. If you're thinking about plumbing, H vac or electric, you can often just call contractors and say, hey, can we look at the business? We're thinking about this. We're in a different state and most people will open the doors. Don't rush into buying a business, but don't ignore it either. For the right person, this is the fastest path to growth that I know. If you like what you heard, make sure you like and submit.