What I Learned Investing in 24 Companies in 24 Months

0:01We don't need more people. We need better people. We don't need more cooks in the kitchen. We don't need more hands in the operating room. We need better surgeons. This has just been this big recurring theme for me. Like the first question I'm asking now is so different than what it was before, call it five or 10 years ago. Over 24 months, we invested in 24 portfolio companies, and then we took 18 months off and ended up doing two deals in that period of time. I want to talk to you about what I learned in those 24 months and subsequently why we We slowed down deal activity and basically just the lessons that we learned from that.

0:40Big picture, the strategy of acquisition.com, like any business, has slowly morphed over time from my initial thesis to kind of what my thesis is today. And so the initial thesis was if I combine old and new, old being private equity investing and new being social media, I would be able to create proprietary deal flow for us. And then I wouldn't have to be the best at picking. I would just basically be able to attract the best quality deals, best quality founders who are amenable to working with us. So, you know, reasonable deal terms rather than what I would consider competitive or auction-like deal terms that happen in a, you know, when you've got 10 different companies bidding for one, et cetera.

1:21And so that was kind of the original thesis. It came true, but in a different way than I originally imagined. And so that's kind of what I want to share with you. We did 24 deals, like I said, over 24 months. A big part of that was figuring out the deal structure that made the most sense for what we did. Now, when we started, we started with this like little hook, which I haven't said in a very long time, mostly because of me finding out that it was wrong, which was majority work for minority stakes. After doing majority work for minority stakes, I realized that there's a reason that people don't do majority work for minority stakes because it's just not worth it.

1:58But what was interesting though, and And maybe there's a silver lining lesson I'll be able to take from this. But of the 24 companies that we originally invested in, we basically divested from the vast majority of them. Of those 24, I want to say six, we are still invested in and or doubled down into those businesses. So yet again, we're not really immune to power law of 80-20, right? But the thing is, is that most investors will write a check and then kind of just like hope for the best. The way that acquisition.com did it historically is that we would write a check and do a lot of work too. And that was because I wanted to, you know, like I don't have a, you know, a billion dollar fund or something like that, that I'm working with.

2:44And so it's like, I try to use the resources I have, which is like, we're good at growing things organically. And so for us, organic growth is what we're, you know, what we're best at. That's how we, that's how we grow the companies that we have. Of the, of the companies that portfolio today, the average founder has 13 13xed the value of their equity. 13. Not including the value of the company, just their share. That's 13x from the deals they did with us. I feel really good about that. On the flip side, though, we also kind of let go of the companies that we didn't see as much potential in. We didn't see as much aggressive growth in those businesses.

3:22A discerning person would be like, okay, well, are you picking or is it you? And the answer, I think, is probably a combination of both. right? I think on one hand, you know, the ones that we did pick that have done exceptionally well, there's an element of picking there. But also we tend to, I would say we are good at this part, which is starve the losers, feed the winners. And so we did this time study, I want to say about 12 or 18 months in, I can't remember, having done a lot of deal activity, the work on my portfolio team started expanding and I could see that they were spread really thin.

3:59And so then I was basically faced with this idea of like, do I need to further expand the portfolio team, which I could have done. I was like, or should I just take the team that I have and allocate them where we get the best returns? That's what I ended up moving towards. But what we did was I did a time study for the whole team to see where they were allocating their effort. And you can probably already guess this if you're a business owner who's listening to this. a lot of the time was going towards the companies that were floundering, the ones that were struggling the most, the squeaky wheels, right?

4:30Which in a services business would function, anybody who has a services business, B2B or B2C, it's like, this is what you don't want to have happen. And so I think that what happened next is the thing that you do want to have happen, but it's also very scary to do. And so maybe this story will inspire some of you to do that. But basically in seeing that, I was like, this is all wrong. We have these companies that are doing really well, and we're spending less time on them. And then we have companies that are stagnant or not really growing that aggressively, whatever, always seem to have problems.

5:01And I'm thinking to myself, yeah, let's put all of our attention there. No, that sounds like a terrible idea. Again, I think this kind of thinking process could be applied across customers. It works the same way. After the time study, I said, okay, here's the deal. We're going to reallocate everyone's time in order of company effectiveness. Basically, where do we get the best returns, right? And so we restacked the team and said, this is what it is. And then we removed people from projects. We removed people from communication cadences with particular businesses. What we did was we got rid of all of the squeaky wheels that weren't growing and taking a lot of time.

5:38We also got rid of medium businesses too. And I know that sounds like crazy, but I've just been all in on this concept of focus, right? And you've heard this is this repeated theme over and over again in my podcast. It's because it's still top of mind for me. What remained after I basically trimmed the portfolio was two buckets. companies that had good returns for almost no effort and companies that had exceptional returns for high effort. And so that's pretty much what we have in the portfolio today. Companies that there's a lot of work that we do, but we get a lot for it. And companies that we do a little bit of work that we get kind of medium returns on, but the relative or proportional returns are probably about as good.

6:26And so think about it like this is like, if there is a company that we think we're going to get, call it, you know, 30 or 40 % annualized returns on. Now that's sound is great in the investing world. But for me as an entrepreneur, I'm like, I want way more than that because we're working too. And this is the piece I think people like don't take into consideration. The vast majority of investment funds, family offices, they write checks and like barely provide kind of like strategic guidance. We tend to do a lot more than that. Because of that, we have additional costs, both hard costs like labor costs, right?

6:58Like I pay teams of people to do things, but just attention. There's a reason that most private equity funds are in the eight, 10 companies is what they select because that's usually what that size team can manage. And most fund managers quickly realize that you make more money just chasing bigger deals than you do off of doing more deals. Now, there are some businesses like Constellation out of Canada, which is a conglomerate and they have purposely focused on going horizontal rather than going up market. So their average company, I think, does like$3 million in revenue and they acquire like 200 of them a year, some absurd number.

7:34And that was something that I looked at originally as like, maybe this is a model because it would make sense with media. We have tons of deal flow in the $3,$5,$10 million range. But I would say that we reinvented the wheel. And what we did was we we looked at the companies that did the best and we put more of our more of our attention there and the thing that was the hard part to cut i'll be honest with you is those ones that are doing okay right like we get distributions they're doing okay but the thing is i know that the majority of my returns are going to come from the beasts right the ones that we're putting a ton of effort in that are just crushing it and so basically we made the hard call and parted ways as amicably as we could with those founders.

8:16Overall, the portfolio continues to grow at a faster rate, more profitably. And the team has more bandwidth to reinvest in the stuff that matters most. Some of the things that I learned, if I had to like put bullets on this. So number one is I would say that I would bet on the jockey, not the horse. This is, and you know, what's tough about this is that some of the things I'm going to say are going to be things that you're like, yeah, I've heard that before. And I wish I could translate it into like, there's like head nodding and then there's like deeply understanding it. I think there's the difference is called between declarative knowledge and procedural knowledge, knowing about something versus knowing how to.

8:50I can say these words and you're like, oh, I've heard about that kind of selection criteria versus understanding what it looks like to live with that selection criteria. So I just say that as a general disclaimer. Like I said, first off, bet on the jockey, not the horse. It's so much, it's all people. It's all about people. Like people build businesses. And if you have dumb people, you build dumb businesses. And if you have smart people, you build smart businesses. It just, and if you have good people, you build good businesses. If you have bad people, you build bad businesses. Like smart, bad people, very bad.

9:20Not a good combo, right? I think Warren Buffett talks about, he's like, you want somebody who's smart, hardworking, and ethical, right? More or less, integrous. He said, because if you have somebody who's smart and integrous, but they're not hardworking, you're not going to get a lot done, right? If you have somebody who's dumb and integrous, well, the stuff that they're going to do and hardworking, they're not going to do good stuff. But the worst case scenario is that you have a partner who's intelligent, hardworking, and evil. And then you have somebody who's working 24-7 against you, which is what you don't want, right?

9:55That's probably number one. It's all about the people, man. It's all about the people. Number two, this is more of a business thing, but I say now we look for revenue retention or the path to revenue retention. Meaning, fundamentally, you want to have some compounding vehicle within the business. And this is something that took me way too long to learn, but it's like, you need to have something that I get credit for the work I did this year, next year. If you don't have a way of getting credit for work you did two years ago, it means the only way to scale a business is simply acquiring more customers.

10:28And that is a very hard way to grow because there are so many things that can disrupt acquisition. You know, like if you're, if you're making content, you can get deplatformed for stuff for whatever reason. If you have a big, call it like door knocking team, it's like a key leader can walk with half your sales force. If you're in paid ads, you can get deplatformed. Same thing, right? And so if you're very reliant on traditional advertising, which to be fair, I make so much content about this stuff. And so I say, I understand this firsthand is that if you are so reliant on that, the company is significantly less stable and enduring than one that, even if we lost all of our marketing tomorrow, we still have all the customers we've acquired over the last five years.

11:09And then we would have some time to figure out what the next thing we're going to do is to get customers or find where the attention is. I'll paint you two pictures really quickly. So let's say you've got company A that sells 100 customers this year. I'll say loses 100. So those people don't buy again. Now, you might be like, oh, they're a bad company. Well, there's some businesses that lend themselves more to reoccurring revenue and repurchases than others. But let's just say they don't sell those people anything else a year later. So the next year they sell 200 customers. So the company doubles.

11:40Okay. Hooray. Year three, the company sells three times as many customers. So they sell 300 customers this year. Okay. But they don't have any from year one or year two. All right. So that's company A. Now company B sells a hundred this year and then keeps all of them. And then next year they keep acquisition the same and sell a hundred, but they still have the hundred from the first year. Now they have 200. And then year three, they still don't grow acquisition. They sell another 100 and they have the 100 from the year before and the 100 from the year before that. And so they have 300. Now, when you look at both these businesses from the onset, you see two, 300, you know, 300 customer businesses.

12:14But which business would you rather own? Obviously, you'd rather have company B because it's significantly more stable. Typically, if you had a business that was structured that way, it's very likely that it'd be more profitable because you don't have to keep paying. Like if you think about, so the company A had to pay the cost of acquiring 600 customers. And company B only had to pay the cost of acquiring 300 customers. So all of that added cost dropped straight to the bottom line. Pretty neat, right? And typically, not always, but typically customers become more efficient over time, meaning like they require less to maintain them over the long haul.

12:52So actually margins can expand. The most expensive thing to do in the business is acquire a customer and then onboard and activate them. Once you have an onboarded and activated customer and they keep buying stuff from you, you're just making money. That is probably like the second big thing that we look for, which is like, do we already have some demonstration of revenue retention? Is there a subset of customers that have good retention and others don't? That would be a great silver lining for us because we probably double down on that. Or is there like a path that we already know they're not doing that we know we could implement that would get revenue retention to kick in, right?

13:28And so there's kind of like the second big thing. It's like, okay, so we got the jockey and this is, you know, revenue retention should be more of the horse, okay? The next thing, I prefer businesses that I understand well. And so we tend to focus on service businesses and software businesses. And so we don't talk about this as much, but like right now, 40 % of the portfolio is software. And it's because it's a higher return on effort, right? Like if I add$10 million in profit to a B2B SaaS company, I might've added$50 million enterprise value or $100 million enterprise value. Whereas if I add$10 million to a service business, it might get a multiple on trailing EBITDA.

14:11So maybe they run 30 % margins. And so we'll call that$3 million in EBITDA, unless they traded eight. And so they would get$24 million for that. So I can get 50 to 100 million for the same effort as I can somewhere else where I get 24. So it's just even though the actual work is more or less the same, that's what's crazy. This is something that I've only realized later. It's just like I can do the same work in a company that just gets more for what we put in. Now, you can make the opposite argument that it might be more competitive. It's harder to build good software, etc. So, of course, there's tradeoffs.

14:39And there's a reason that the market prices it at that is because there's just not as many of them. Three is that it's within our sphere of competence. And so those are kind of, and for me, like I love B2B. I think we're, I just looked at our stats. I think we're like 30, I think we're 30 % direct consumer, 70 % B2B across the world. It might be 60, 40. I'd have to think it out, but somewhere in the neighborhood. So we're a little more B2B than we are B2C, but we still have a significant B2C presence. I'll say the next thing that I really focused on is not going after great ideas. All right, so hear me out on this.

15:20I'm an entrepreneur and I am an optimist, eternal optimist. I get excited about the potential. I mean, that's what allows me to start business. It's like I'm willing to take on risk. But that has been a double-edged sword for me because I will believe in something more than the founder will sometimes. Basically, I've gone for a little bit more, a little bit more tested, a little bit more tried. Like I want to see it, not believe it could happen. And so I think that's something that a lot of, you know, investors go into. And to be fair, it's kind of the same thing with business, right? Like if you have an acquisition channel or a product line that you're thinking about starting, it's like, it's nice to know that there's already demand for something.

15:56Having some sort of, some sort of pretest before making a big bet. And I think I made, I made a lot of bets on things that I was like, I was really excited about the idea. And the execution was lagging behind. And it's far more likely to get something that actually works, that already is working well. Like I said, some of these lessons that I've learned have been, I actually do them now rather than kind of nodding my head. I know what it's like to turn something down just because it's a great idea and it's exciting, even though they don't have the track record that I think is supported. And so that kind of translates into fewer, better, bigger deals.

16:36Now, I could make the equal opposite argument of, well, you had to go through those to know these lessons. Now, yes, no, I don't know. But I know that I have those lessons now. And so basically, we're doing fewer, fewer bigger checks to fewer, better companies that are typically bigger than we were, you know, three, four years ago. And a big part of that is also that like, The biggest companies in the portfolio are big. They're not small. I make content that's like, how do you get your first five customers and things like that because I like to encourage newer entrepreneurs. And my long game is that many of those entrepreneurs who do make it, they will hit me up when they're at 30 million or 50 million or whatever it is so we can go from there.

17:20And so that's kind of my long game with this, just FYI. The businesses that we have are fairly big. I think we have, I can look at it, but I think we have four companies that are doing over 30 million a year. One's over a hundred. So like in our average positions, uh, just about 40%, right. And I don't use anyone else's money. And so this is all, this is all, you know, our, our funds. Those are, those have probably been the biggest lessons. It's the, it's the jockey number one. Then what's the, what's the one metric that I look at from an investing perspective, which is going to be revenue retention.

17:52I mean, I'll obsess about that and I'll double click into that real quick. The reason that I like that one so much is also that I can typically reduce CAC dramatically in a business. So that's like my sphere of confidence, right? Like I know how we can get more customers and I hope we can get them cheaper, make it better, have a better offer, et cetera. If I know somebody has got a product that's sticky, that people want, people like, then I can figure out a way to sell it. That's why I like those types of businesses. Because again, it's uniquely suited to my competence, which is number three.

18:22And then going after fewer, bigger, basically going after whales, not minnows, or hoping minnows turn into whales. Now, if I were to play devil's advocate with myself, which you can probably tell from the nature of this podcast, I do a lot. We did 24 deals and we have basically like, I'll call it three stallions in the portfolio that are really monster businesses. Like all three have billion dollar potential slash are already past billion dollar potential in that you know, they've received a investorship in access of that valuation. And I would say, okay, well, three out of 24, it's like, okay, this is, this is parallel, right?

19:01Right. You should, you should have had somewhere in the neighborhood of four ish, maybe five companies that did, you know, exceptionally well. And we do. And the three monsters are obviously way outsized of just doing well. They're monsters. It's like, maybe I should just repeat that process again. And so I think, I think a lot about this stuff because this is, I mean, this is fundamentally what my job is, is where do we allocate our resources? Where do we get the highest returns on what we put in? And so So I will leave you with this, which is like, I think in the next few years, some of these podcasts will probably get a disproportionate amount of views because we will have the third party verification that the numbers we said are the numbers that we do.

19:42Maybe I'll just say this as a reminder for myself at that point. Everyone's just figuring it out. There's so many things I don't know. And there's so many times where I just make a guess. I make a bet. I'm like, this feels like it makes a little bit more sense. You know, the big thing that I keep coming back to is just like leverage. We're like, where do we get the most returns for what we put in? And how can we speed that loop up as fast as possible? And so I just spent a lot of time doing that and a lot of time deleting. And that's like from the top down. You know, deleting companies that just aren't a good return for us.

20:21Deleting people that don't have good returns. deleting processes, there are, in my opinion, only a handful of people that provide the outsized value within a company. A lot of the rest are not, they don't really move the needle that much. When you're thinking through making a company better, removing the dilution of value can sometimes be one of the most powerful things you do. Anyone who's worked with a team before, I don't know if you've ever worked with a team in high school where you had to do like, or college, I did like a project in a group or something. And you're like, guys, I'll just do the whole damn thing.

20:55Like you guys can take off. I don't like it would be easier for us and we will all get better grades if I just do it. Then me try to fix all the terrible stuff that you're going to do and then be affected by it. And the thing is, is like, I think a lot of companies run that way is that like people do group projects because there's a group, not because the output's better. Right. If the output's better in theory, because we assume 10 hands with five brains is going to to do better than, you know, two hands with one brain. But if one brain is way more experienced and has more knowledge around that specific thing, then that one brain and two hands is honestly handicapped by the other eight hands that don't know what they're doing, literally just getting in the way.

21:36So I'll give you an analogy. So think about it like there's a surgeon, right? So world-renowned surgeon, and he's got to do a brain surgery. You say, okay, well, we're going to bring more people into the surgery room so that they can help them out because they've got brains and hands too. I'll bet you that surgeon would just be like, just get out of the way and let me do the surgery. And so sometimes we have this, and this is just something that's been a theme for me right now, just because it's probably top of mind with some of the portfolio companies. We don't need more people. We need better people.

22:10We don't need more cooks in the kitchen. We don't need more hands in the operating room. We need better surgeons. And so this has just been this this big recurring theme for me that's been a big emphasis for how I'm building, really assembling companies more than building them. It's like, how do I get the absolute, like the first question I'm asking now is so different than what it was before, call it five or 10 years ago. Like the first question I ask is like, how do I get the absolute smartest people to want to work here? And then that question becomes almost central to the strategy. Because if we have the absolute smartest people who are the hardest working and they're incentivized and they're aligned with the goal.

22:47I'll just, I'll walk out of the surgery and let them do the surgery. And so that has shifted dramatically from, you know, how I thought about things before. And if you listen to some of the founders that I look up to a lot, a lot of the big publicly traded companies who are still founder led, this is this recurring thing that they talk about too. It's just all about the people, which is why I say, I know you'll nod your head and I know you'll say, well, duh. It's hard to be able to recognize that level of talent and have a deliberate strategy for attracting true A players. And the thing is, is that your idea of an A player is not as good as what your idea of an A player will be in 10 years.

23:26I promise you that. And so it's trying to like, it's trying to like play this game with myself where I think, okay, what will 10 years from now me think A player is? And how can I hold that standard in that bar today? Like, what do I have to do to trick myself? And how can How can I get into these networks where I can leverage some of these better people in? Those are some of the lessons that I've learned from the 24 deals that we did over 24 months. We shrunk it down to the deals that we got the highest return on. We shrunk, we deleted people. We deleted processes that were not value additive.

24:01We focused on the jockey, not the horse. The horse itself, we looked at revenue retention as long as we thought that we could add the acquisition part. That's where the third element of that is, our core competence, which for us is business services and software. And going after fewer, better, bigger deals. And so, yes, my friends, that is the top mind pod. I partially am making this so that I can document it for myself so that when we do hit our B or multiple Bs, I can not let it go to my head. Because I'm learning as I go, same as you. anyways have an amazing day i'll catch you guys soon bye