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On Compounding
There is an analogy in sailing I like to think of in terms of compounding. When working on a vessel, you should always act as if a storm is coming. This discipline sets you up for when the storm is come. Keeping lines secured, best practices always maintained, ensures you will not lose those habits. Habits compound in your own life, relationships, and in your business.
The point is little actions matter. Compounding matters.
I have been seeing the subject of compounding appear more frequently. Compounding begins with small steps and can reach massive heights or supreme lows depending on which direction it is moving.
Kevin Dahlstrom at Swell has a podcast called Compound and interviews people like Keith “Mr. Compounding” Wasserman. Keith started with a few real estate holdings and has grown to over $1B in managed assets. That took time.
Writing, conversing, and listening consistently has improved my own thought process and creates a track record I can look back on.
This Mr. Beast video that Moses Kagan retweeted shows how relationships and knowledge and testing compounds. The iterations and feedback compounded to success.
But what are some ways we can compound in our lives?
You can compound benefits and training for employees. This improves your employees’ skills, lives and brings about curiosity. For example, Josh Schultz at Canekast recently tweeted about bringing the best benefits to every single worker. Josh and Reg are “sacrificing” profits, but building something amazing that takes care of those working on their vision.
You can even compound your knowledge. At Hadrian, people are building out processes to transfer machining knowledge from the skilled to the unexperienced. Peter Lohmann is so good at documenting processes and delegating, he can take month long vacations!
On the most recent episode of TLAO, there was this great line:
“Every seller should be a reference for another seller.” Even if someone doesn’t sell to you, your process and just quality of good actions compounds. In a karmic way, what you put out into the world returns back to you.
Before you go to find every possible way to compound and improve aspects of your life with leverage, remember that we don’t need to be scouring every aspect. You can enjoy parts of your life the slow way, the “inefficient” way. My grandfather could easily pay for someone to mow his lawn, but he does it himself weekly.
Hit reply to this email if you have any ideas or practices to share on compounding in your own life.
Thanks to Everest Brady for his help, writing, and research in assembling this week's newsletter.
Read
The timing of cash flows can be very important to how your business runs and affect returns to you. 10-K Diver breaks down finance and investing in a rather straightforward way, often with stories. In this longer thread, he helps us understand how the timing of cash flows work and how critical it can be to your operation.
Listen
Bain & Company covered the Founders Mentality and transitioning from agility to long-term sustainable growth and scale. It's a densely packed YouTube video with occasional slides, but it is able to be listened to and still get the message.
SMB Job Postings
Byron Assistants, owned and operated by Ujwal Velagapudi, is hiring for a Chief Operator role. Byron pairs US based, college educated virtual assistants with customers and is already at high 6 digits ARR. The role will have full autonomy and significant upside as you learn the business inside and out. You can see the job description here and apply here.
Ujwal also came on TLAO covering how he acquired 9 companies (including a large vending business), real estate, close calls, use of debt, and more.
This Week on Think Like an Owner
My guests on this episode are Jay Davis and Jason Pananos. Jay and Jason acquired Vector Disease Control, which provides vector borne disease prevention and lake management services, in 2011. About 4 years after acquisition, they realized serial acquisitions complementary companies could be a powerful growth lever. And 14 acquisitions later, they sold the company in 2017 for a very successful outcome. Following the sale, they founded the Nashton Company where they’ve been mainstay search investors and the last few years holding company investors.
They’re also co-founders of Compounding Labs, a partnership between Jay and Jason, Kent Weaver and Will Thorndike to invest in long-term holding companies. Our conversation covers their investing in holding companies, how they approached serial acquisition at Vector and how they advise other searchers in the strategy, sources of capital and deal pacing, and building deal teams and when to start that process within your serial acquisition or holding company cycle.
This Week in SMB Twitter
This post by @SamtLeslie reminded me of the first 2 SMBs we bought at @PursuantCapital. Absolute trial by fire: ran a blue collar rental business by day, and was supporting the GM at a separate light manufacturing business by night/wkend. Weeks looked like this:
— Sam Rosati (@Sam_Rosati)
1:52 PM • Aug 30, 2022
Do I need a CFO?
I've heard a lot of people thinking this.
For small businesses under 5mil sales... prob not.
But if you want to take your biz seriously, you need to have a finance function.
Its one of the three key pillars of SMB
The CFO heads this function
— Josh Schultz (@joshuamschultz)
8:07 PM • Aug 25, 2022
An observation, as my peers & I move into our 40s:
People who “don’t care about $$” often begin to care very much about $$ when they realize, sometimes too late, that their lives have become constrained by its absence.
— Moses Kagan (@moseskagan)
2:05 PM • Sep 3, 2022
KPIs are helpful, but there's real danger in taking something at face value & drawing wrong conclusion
Devil in the details...how exactly did you calculate, is that the same as the benchmark, is your data input process accurate, what's included/excluded, etc.
Careful out there
— Tom Birchard (@birchard_tom)
7:35 PM • Aug 31, 2022
Think Like an Owner is sponsored by:
Live Oak Bank – Live Oak Bank is a seasoned SMB lender providing SBA and conventional financing for search funds, independent sponsors, private equity firms, and individuals looking to acquire lower middle market companies. If you are in the process of acquiring a company or thinking about starting a search, contact Lisa Forrest or Heather Endresen directly to start a conversation or go to www.liveoakbank.com/think.
Hood & Strong, LLP – Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected].
Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and Employee benefits programs. If you are under LOI, please reach out to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to the CEO, August Felker, directly at [email protected].
Interested in sponsoring? Reply to this email and let’s chat.