“Buy Then Build” by Walker Deibel
Overview:
“Buy Then Build” advocates for entrepreneurship through acquisition (ETA) as an alternative to traditional startup creation. The book argues that acquiring an existing business with established revenue and infrastructure offers a faster, less risky path to building wealth and achieving entrepreneurial goals. It provides a framework for identifying, evaluating, acquiring, and growing small to medium-sized businesses. The core premise is that acquiring a company that is already generating cash flow is a less risky and faster way to entrepreneurial success. The book provides practical guidance and frameworks for identifying, analyzing, and successfully acquiring businesses, ultimately arguing that it’s a more efficient path for many aspiring entrepreneurs.
Main Themes and Ideas:
- Acquisition Entrepreneurship as an Alternative to Traditional Startups:
- The book positions “buying then building” as a superior model to “building from scratch.”
- “Practicing acquisition entrepreneurship flips the startup model on its head. Instead of building the infrastructure and then working to find the revenue to support it, it seeks profitable revenue first.”
- Acquisition eliminates the startup runway, enabling an immediate focus on improving a successful enterprise.
- “…the startup runway is eliminated, allowing for immediate focus on activities that improve an already successful enterprise. Activities like managing, innovating, and growing the company start on day one.”
- Acquiring a cash-flowing business provides immediate opportunities for management, innovation, and growth.
- The Importance of an Investor Mindset:
- Acquisition entrepreneurs need to think like investors before starting.
- “What’s different about an acquisition model is that the entrepreneur needs to think and act as an investor before getting started. This engineers stronger, more sustainable companies and better entrepreneurs.”
- Evaluating a business’s opportunity from a financial perspective is critical. The author stresses the need to analyze whether a potential acquisition is a good financial decision.
- “It will be the investor mindset that will need to evaluate whether this is a good financial decision…and to analyze the business’ opportunity.”
- Understanding and managing downside risk, similar to value investing principles, is paramount.
- The book references Warren Buffet’s value investing approach and the concept of “margin of safety,” emphasizing that you “make money when you buy, not when you sell.”
- Key Attributes of Successful Acquisition Entrepreneurs (The Law of Three A’s):
- Successful acquisition entrepreneurs require a combination of attitude, aptitude, and action.
- The three As must work in harmony.
- “For the acquisition entrepreneur to find the right company and have success running it, they too need to have all three attributes working in harmony: Attitude, Aptitude, and Action.”
- Other key competencies include: Analytical, Innovative, Operational, Human, Strategic, Opportunity, Relationship, Commitment, Learning, Personal Growth.
- “Essentially, getting a resourceful and driven individual committed to a good opportunity will win every time.”
- Developing a Target Statement and Defining Acquisition Criteria:
- It’s crucial to define a clear “target statement” outlining the desired business type, size (based on SDE – Seller Discretionary Earnings), industry (or type), and location.
- “I’m looking for a commercial IT service business with solid operations but lacking a strong B2B sales effort, generating between $750,000 and $1,000,000 in SDE in the regional southwest.”
- Focusing on SDE (Seller Discretionary Earnings) as the primary metric for evaluating a business rather than revenue is emphasized.
- “Instead, define the target by the amount of SDE. To review, the Seller Discretionary Earnings (SDE), is a measure of how much total cash flow the seller of the firm has been enjoying.”
- Finding and Approaching Potential Acquisitions:
- The book advocates for proactive outreach to brokers and even direct contact with business owners.
- “…going to the source of what you want is the fastest and most direct method. Indeed, sussing out brokers who manage businesses for sale for a living is the fastest and most direct way to get to the company you will acquire.”
- Networking with bankers, M&A advisors, and other professionals is essential.
- “Ask them who they have had exposure to, who they like, and whether they’ll help you with an email introduction.”
- Building relationships before needing capital is critical.
- “You don’t actually need any money…yet… which is the best time to be meeting and interviewing.”
- Analyzing and Valuing Businesses:
- Cash flow is the most critical aspect of a business, so it should be the basis of the price.
- “At its core, what you are buying is an asset that provides cash flow.”
- Understanding Seller Discretionary Earnings (SDE) and EBITDA are important to business valuation.
- “The purchase price, as we have covered, is derived by paying a multiple (M) of Seller Discretionary Earnings (SDE).”
- The book stresses the need to “reverse engineer” the business worth based on what you’re willing to pay.
- Financing and Deal Structuring:
- Maximizing debt can maximize ROI, but also increases risk.
- “Further, as we saw in Chapter 2, maximizing debt also maximizes the ROI for the investor (i.e. the acquisition entrepreneur, in this case).”
- Exploring SBA-backed loans and search funds as financing options.
- It’s recommended to get prequalified by a bank to ensure the deal can be executed quickly.
- “The best thing you can do as a potential buyer is be prepared by getting prequalified. This is the best avenue to assure you can execute in a timely manner.”
- Working with Sellers and Closing the Deal:
- Convincing the seller that you are the right buyer is the first step.
- “In this chapter, I’ll show you why your first job is to convince the seller you are absolutely the right buyer before you determine whether the company is the right fit for you.”
- Focus on being an enthusiastic entrepreneurial partner instead of a cynical investor.
- “…establishing yourself early on as a partner and “good buyer” will also win you great favoritism with the intermediary.”
- Being prepared to walk away is essential.
- Having only one Letter of Intent (LOI) active at a time is important to move forward.
- “Although you have been looking at many companies up to this point, it is critical that you understand you should only have one Letter of Intent active at any given time.”
- Post-Acquisition Growth Strategies:
- Growth will come from getting more customers, getting the same customers to order more frequently, or by getting the same customers to purchase a higher order value.
- After making the acquisition, there will be a need for growth through marketing, and operational excellence.
- “Ultimately, there are three ways to grow a company. You need to get more customers, you need to increase the order frequency of the customers you have, or you need to increase the average order value per customer.”
Key Quotes:
- “Buy Then Build clearly outlines the framework for capturing value through acquisitions.” – Mark Daoust, Founder of Quiet Light Brokerage
- “Buy Then Build should have been taught in every MBA program.” – Codie Sanchez, Founder of Contrarian Thinking
- “Practicing acquisition entrepreneurship flips the startup model on its head. Instead of building the infrastructure and then working to find the revenue to support it, it seeks profitable revenue first.”
- “What’s different about an acquisition model is that the entrepreneur needs to think and act as an investor before getting started. This engineers stronger, more sustainable companies and better entrepreneurs.”
- “At its core, what you are buying is an asset that provides cash flow.”
Target Audience:
The book is targeted towards aspiring entrepreneurs, business owners, and investors who are interested in a less risky and potentially faster path to business ownership and wealth creation through acquiring existing businesses.
Disclaimer Consideration:
The book includes a standard disclaimer, reminding readers that entrepreneurship involves inherent risks and that individual results may vary. It emphasizes that the reader is ultimately responsible for their own decisions and actions.
This briefing document should provide a comprehensive overview of the central ideas presented in the provided excerpts.
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