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The Art of Post Acquisition Growth

Transcript

What’s up, everyone? It’s your host, Greg Al Frank, the host of the Opportunity Podcast. Today I’m doing another solo episode.

These last few weeks, I’ve had a very bad rash of guests just rescheduling on me, and I just got back from traveling to an event. I’m going to another event here in about a week from now—Chiang Mai SEO—so if you’re in Chiang Mai and this comes out by the time… this should probably come out around that time… come and say hello to me at the hotel.

But with that said, the show must go on. So even though my guests have rescheduled with me a few times, I figured: great opportunity for Greg to go on another long monologue. So let’s do it.

If you are watching this, by the way, on our YouTube channel, this is a little bit different than our normal YouTube videos because this is basically our podcast, if you didn’t know. I host a podcast called the Opportunity Show. Typically, I am interviewing entrepreneurs from a wide range of fields and expertise and different levels, and they’re doing different things.

So if you want to check that out, go to empireflippers.com/podcast and you can see all the episodes there. Now, if you’re listening to this on the podcast and you’re like, “Well, Greg has a YouTube channel?” go to youtube.com/empireflippers and you can see the more highly produced videos there where I take a topic and do a little bit of a deep dive on it.

So today, what I wanted to talk about is: what do you do after you acquire a business? Because acquiring it is one thing. There’s a bunch of good things that we could talk about there, and we often do. But really, the power of buying a business doesn’t happen when you buy, but what happens after you purchase the business.

In real estate, when you invest in real estate, they often say the money is made based on how you buy, which is very, very true. And with businesses, that is kind of true too, but nowhere near as much as real estate.

So I often tell people: you can go and buy an overpriced business. As long as it’s a good business, it’s still potentially an amazing investment. Even though you overpay—let’s say you overpaid by 10% or even 20% of the true value of the business—as long as it’s a high-quality business and you understand what you’re doing, that extra 10% or 20% premium you paid ultimately doesn’t mean a lot in the grand scheme of things.

For example, just recently, we had a business buyer who bought a business from us for $180,000. Now, I think it’s about 22 months later, something like that, they’re selling it with us again for $1.1 or $1.2 million. So even if that 180k was 20% over value, the amount of money he’s getting on the flip, on the exit—not including all the cash flow from the growth he did—it doesn’t really matter as much.

So let’s talk about what can you do to grow what you acquire. There’s a million different ways to grow a business, right? There are tons of different strategies. What I’ve decided to do is look at the most boring ways to grow that apply to the majority of businesses—not only what we sell, but really any kind of business you buy.

I call this sort of the PE lens. And by the way, my voice is a bit scratchy, so excuse me. I just got back from the conference and my throat is a bit weak. But as I said: show must go on, right?

I wanted to do this private equity version of growth because, you know: you talk to an SEO, they’re talking about SEO all the time. You talk to a paid media person, they talk about paid media all the time, right? Talk to a salesperson—it’s all about adding more salespeople. Whatever skill they have, they take the hammer to that.

But what’s interesting about private equity is they look at multiple different areas of the business, and there’s not a whole lot of creativity involved. Like, there’s some for sure—don’t get me wrong. And the more creativity you have, the more innovation you bring, obviously the better for what you acquire.

But private equity, they’re kind of like an assembly line, and they need to go quick because usually, when private equity buys a business, they have between four to maybe eight years of owning that business, where they really need to exit it at a premium price versus what they bought it for to make their investors happy. So they’ve got to go fast, and they follow kind of a proven playbook of four or five main segments that they focus on.

So let’s get into what are these segments that private equity people do when they go and acquire a business.

As I said, private equity isn’t really buying the business because they’re in love with the business. I’m sure the representative who found you is, but they’re really buying the business not to appease some kind of thing that they want in terms of being an entrepreneur, but rather to apply their systems.

There’s a lot less creative thinking that goes into this because they have these systems. So growth isn’t looked at as innovation, but rather systematic—as a discipline that you’re providing consistently over and over again.

As I mentioned, there are a few main areas that are going to be focused on, especially in the first 12 months post-acquisition. Those are:

First, stabilizing your cash flow. Because it is common knowledge: when you acquire a business, it is not uncommon to see the profit actually dip from the moment of that acquisition. It’s pretty common. There’s a bunch of reasons why that might happen. The most common reason is the seller: everything they were doing, that business is second nature to them. But you as the buyer—even if you’ve done a crazy amount of due diligence—a lot of the business is not yet second nature to you. So the business will probably suffer a little bit when you first acquire, but that’s very normal.

So the first step that private equity is doing is they are stabilizing that cash flow. They want to make sure that the profits are good. That often means they’re not doing a whole lot of changes within the first two or three months.

That’s a mistake I see a lot of business buyers make: they buy a business and they want to change everything as quickly as possible before they really understand what the system of the business is in the first place. As long as you understand how a good system works, you can turn it into a great system. But if you destroy a good system right out of the gate, well, you’re kind of screwed, right? You don’t know what you don’t know.

So I often advise buyers: “Hey, let’s take a chill pill. We just completed the transaction. Let’s wait like a month or two before we do any mega changes.”

Now, with that said, private equity will also be looking at quick wins—things they can do right away that should be a good tweak to the system. We’ll get into what some of those quick wins are here in a second.

Next is building leverage through efficiency. The more leverage they have, the more power they have. That goes from using debt to acquire the business in the first place, but also looking at the type of systems that the business has that can be leveraged and really doubled down on.

Because as an investment class, at least in my view, businesses offer one of the best asymmetric plays on the planet when it comes to what it can do to help grow your dollars, right? And that’s exactly what the private equity people are looking at: what are in the bones of this business that can really push the needle, that doesn’t require too heavy of a push from our side?

This could be something like scaling ads, a CRO campaign, hiring someone like an operator, or something like that, right? We sold a business where the seller was just so dog tired of fulfilling on the product because he had to use this machine and press on it over and over again for a few hours every day. He was just so dog tired of it, and he was so lost in the weeds of his own business, he didn’t realize he could just go hire an entry-level employee to operate the machine—which is exactly what the buyer did when they took over the business.

That freed up the business owner to focus on marketing and growth of that product, which turned out awesome for that entrepreneur.

So this is the stuff a lot of private equity people will be looking at—the main areas. And again, their growth is not so much about creativity, but more about discipline: creating a plan and planning their work, and then working that work.

All right, so the first real segment as we dive deep into this is redundancy elimination.

This is where private equity gets this big bad boogeyman reputation. Basically, whenever you hear about them cutting heads, laying off employees, really increasing the profit by basically getting rid of everyone that they’re paying—this is usually what people are thinking of.

And there is some truth to that. There is some truth that private equity does tend to lay off employees. But it is also, in my experience, kind of overplayed. Because a lot of the time—especially bigger private equity companies—they don’t tend to have operators. So when they acquire a business, the employees in that business are heavily relied upon by the private equity firm. So it’s not really something they want to do; it’s something they will do if they think that’s the only option available to them.

But in general, a lot of private equity people want to keep the talent. Now, there are certain cases where that is not true, which we’ll get into.

Before we get into the employee side, let’s talk about the much easier and often overlooked side of redundancy elimination, such as software.

There have been businesses that I’ve seen where they have basically two CRMs. Like, you don’t need two CRMs, right? You might be wondering, like, how could that even happen? Well, it often happens where a business will have their own custom platform—basically, like Empire Flippers, we have our own custom platform, right?—and that platform doesn’t speak with the CRM, say like HubSpot.

And there’s a lot of tech debt that happens between these two platforms. Or they might be switching from one CRM to another, and for whatever reason that switch has gone on for a very, very long time, creating a fractious environment inside of the business. So this is an obvious one to eliminate.

Another example might be where a business has two different agencies doing the same thing. Now you might again ask, “How can that happen?” Well, if a business gets big enough—let’s say there are multiple heads of multiple different departments—there might be a time when engineering needs a UI guy/designer, and so does marketing. But the marketing and the engineering guy are not speaking with each other and they don’t know that one has one already. Or maybe it doesn’t fit the needs of the other person, which can lead to these retainers that go on for a very, very long time because nothing was ever consolidated.

So this is another example of redundancy elimination where it’s not exactly getting rid of employees.

Another issue—say in e-commerce—might be multiple suppliers that aren’t giving you as good of deals. Maybe you want to consolidate some of those suppliers. Or even for your fulfillment centers, standardizing that whole logistics—all that kind of good stuff.

And that moves into what we were talking about earlier: tools, software, and subscriptions.

This is often a death by a thousand cuts, especially if there’s a big marketing push in the business you’re acquiring. Because marketers like me, we love shiny new tools that we buy the free trial for, and we get charged for months on end, and we’ve logged into the tool once.

So it’s very easy for marketing teams in particular to have a bloat of software—different random tools that they’re not even really using.

And there’s often a thing that happens, especially in businesses where they’ve been around longer—say five-plus years—where there are new solutions, new software, new tools that are light years ahead in terms of how good they are versus the previous.

I’ll give you an example. I have a buddy of mine; he was looking to sell his business, and I looked at his P&L, and there was just one software on there that used to be the crème de la crème of what it does. But now it’s considered much more of a dinosaur—expensive and, you know, baroque. It’s not the greatest around anymore.

If he had just changed out that one software, considering how heavily he was using it—and it was a usage-based pricing kind of software—he would increase the valuation of his business by 20%.

So that means me, or you, come in and buy that business: this is an obvious quick win. You can easily replace that software with the new software that’s way cheaper, and you already got a massive ROI on the business you acquired.

So these are areas that private equity will probably be looking at first before they ever really look at headcount and employees in particular.

Now, a rule of thumb: every $1 saved here is basically like $3 to $5 value increase to your eventual exit in terms of the multiple and all that kind of stuff. Every dollar you save here is massive. It’s pure profit.

This can create some serious enterprise value if you only do this segment.

But now we gotta talk about the employee situation that gives private equity a bad name. And I will give you a tip here, especially if you’re doing something a little bit more ambitious than just buying a business.

If you’ve ever watched the movie Up in the Air with George Clooney going around firing people all around the great nation of America, this is basically what private equity is thought of in terms of what they do. And again, it’s not wrong. A lot of private equity does this.

But the reason why that happens is typically because they’re doing a roll-up. So let’s say I’m going and buying 10 different marketing agencies to roll them all up into a single entity for a big exit down the road, something like that, right? In that scenario, I don’t need 10 bookkeeping members, accountants, and human resource people, right?

So in a typical private equity fund, what they’re going to do is let go of a certain amount of them—probably over 50%—pocket extra money, boom, boost to the valuation. Happy days. Except for the employees that got laid off, right?

But if you are the one controlling the fund, I have a friend—he was pretty clever with what he did here. So he was doing roll-ups and would run into this kind of situation. He didn’t want to get rid of these good people because they were pretty talented themselves in their own way. But obviously the business didn’t need that many of them, right?

So what he did was take these redundant positions and create a whole new business entity with all those redundant positions. They put those people in there: “Okay, you guys work for this company now.”

So, an example: if you had like five HR/recruiter-type people—great. We are starting a little small business that focuses on recruiting for marketing agencies, right?

So now you can use the marketing agencies in the portfolio to market this HR service, this recruiting service, for other marketing agencies—which could also kind of double as deal flow to acquire more marketing agencies.

But also, you can use that own service to grow the agencies because what are they good at? Recruiting marketers for agencies, right?

And you not only saved all their jobs and created a whole new entity with a whole new cash flow, with a bunch of internal clients out of the gate—you also increase the overall enterprise value of the entire “world” quite significantly because now there’s a whole new entity that is adding to the valuation when you eventually go to exit.

So there are a bunch of different creative ways you can go about this. It’s not just like, “Hey, we need to fire all these people so I can get my margins right.” But sometimes that is it—but not always.

So there’s almost always a solution out there outside of just letting people go.

And like I said, private equity, despite the boogeyman reputation it has when it comes to this, typically they don’t have operators. They’re spreadsheet wizards. They’re MBA people. They’ve never really operated a business on the ground. They don’t understand what goes into it.

They understand how to buy a business and how to get deal flow, right? But not necessarily how to run your local car wash or anything like that. So they tend to rely a lot on the employees that they inherit from the entrepreneur that sold them the business.

All right, let’s move into the second part here, which is pricing optimization.

This is something that I see entrepreneurs struggle with quite a lot. This is by far the simplest thing you can do, and you could technically do it right away when you acquire a business, though I do recommend spending maybe 30 days without touching price or anything like that so you get comfortable with the business.

But it is very, very common for entrepreneurs to basically undercharge themselves. They often think, “The only way I’m going to make it against all these other people is if I’m the cheapest in the room and cheapest in the market,” right?

And again, if you’re just starting out, yeah, okay, there’s some truth to that. But you’re buying a business, right? So it’s already proven itself to be pretty good. And usually the entrepreneur started with that mindset and just never changed their pricing.

I sold a software business that had been around for 20 years and never once increased its pricing—ever. And you have the customers on a recurring payment cycle. So every month, the customers had to go log back into that software and pay again to get access to the software for the month. A lot of friction.

And 20 years ago, recurring payments on SaaS wasn’t that common. But that entrepreneur grew that business; it just never adapted to the time. It never brought it into modern pricing and modern add-to-cart, modern payment processing, basically.

So there are a lot of businesses like that, and it is very common that you actually have a lot more price elasticity inside of your product than you think. We always think like, “Oh, we’re going to raise our prices and the customers are all going to be super pissed off at us,” but that’s usually not what happens—as long as you do it well.

Now, I’m not saying go double your prices or something like that unless you change your offer and what you’re giving to the customer. But what you can do is do a 10% to 20% increase to the product price and then you can go measure churn, right?

This is why I say you should wait for about a month: you want to see what is the churn versus the historical churn before you acquire the business, in terms of how many people are falling off, or the conversion rates, all that kind of good stuff. You want to get a good grasp on that.

But once you do, you can go and raise your price by 10%, then 15%, then 20% over a period of a few months. At each price spike, you can also reach out to all the customers to let them know, “Hey, this price is going to go up. This is your last chance to get this.”

Maybe you can offer them a year discount or something like that to be grandfathered into the old prices—all that kind of good stuff.

By the way, for my friends that are building software businesses, this is one of the most powerful ways private equity increases their margins: just by simply increasing the price. And this is why they hate you if you do a lifetime deal.

I’ve been in many arguments with people on the internet over the years, like, “Oh, I got all these lifetime deal users.” Buyers hate that. And if you’re a business buyer looking at buying software, that’s a massive red flag if like 70% of their customers are lifetime deals.

Because guess what? You get to inherit all these customers that you made no money off of. And if you reneg on the deal, it’s going to create all this bad PR for the company that you just probably spent a lot of money buying.

This is why business buyers hate lifetime deals. If you are a seller of software services and you love lifetime deals, I highly recommend: don’t do lifetime deals. Do lifetime discounts. Instead of “one-off and never pay again,” maybe they get a permanent 10% discount off whatever the retail price is.

So that way, they can still get their prices raised down the road, right? We don’t want to wait like 30 years and still not be able to raise the prices with all the inflation going on.

This way they always get that 10% off for being an early user as part of their lifetime discount, but the business buyer still has the flexibility to bring in more money, or let those users churn if they are too burdensome for the system, basically.

So that’s it when it comes to pricing.

And like what I said earlier about every dollar you save leading to like three to five dollars in exit value, this is even more true here with pricing because this top line you’re increasing—this is like pure profit, basically. All you’re doing is changing the price.

Now before I move into the deep dives of different departments that private equity does, one more thing on price.

When it comes to price, people think like, “Okay, Greg says I can increase my prices by 20%, so I’m just going to do that and, hey, I’m done.” Wouldn’t recommend doing it that way.

I would recommend doing it in a staggered, measured way. Because what you’ll find is: say you have a $150 product, say you end up charging $200, like toward the maximum end of that range—you might be still making great conversions, all is good.

But if you never tested $170, you may never find out that while, yes, you’re charging less, for whatever weird trick of the mind, when you charge $170 you not only get more money per purchase than the $150, but you actually increase the conversions.

So by being at $170, you’re actually making more money than if you’re charging $200 because, for whatever reason, your conversion rate goes up and the velocity of the sales is increased.

So there’s a very important thing on pricing: it’s not always about being the most expensive, but it’s about finding that sweet spot between how much can I charge while still getting a lot of sales that doesn’t hurt my conversion, or ideally boosts my conversion.

You might think, “Well, if you’re going to raise the prices, doesn’t that always hurt conversions?” Not so. There are many times where increasing the price actually positions you as a more valuable product. Even though you change nothing else about the product, people are more likely to look at you as a serious contender for their dollars. It’s a weird thing.

This is why often people say no one ever really builds anything based on free knowledge or free mentorship—which is sort of true because paying gives you kind of an accountability to it.

And likewise, a more premium product tends to have a more premium price, and therefore in our mind we connect these two.

One other thing with pricing: for entrepreneurs who think, “I need to be the cheapest all the time,” there is no advantage of you being the cheapest. There’s literally none.

I should say there are two advantages when you start out. You need money, and being free and dirt cheap is the way to get your first dollar. For sure, that is definitely true.

But as you expand, as you get beyond that newbie phase with your business, it really doesn’t pay to be the cheap one.

The only advantage you have at scale for being cheap is if you have massive scale—like if you have Walmart or an Amazon-level distribution and scalability. Sure, you can be the cheap one in the room and undercut everyone because your economics of scale are absolutely massive.

But if you are in second place to them and you’re only second as cheap as them, well, you’re basically worthless in the market because no one cares about the second cheapest option.

They care about either the first cheapest option or all these other options up here in the more premium space. So I always tell people it is easier to play in the premium space—not only to get better margins, you get better customers—but you can actually treat your customers better while also reinvesting into the business.

So it’s almost always worth it to go toward the premium side of whatever you are selling versus staying on the cheap side.

Okay, that’s my speech on pricing.

So the next thing private equity people do: they’ll do what I would hope you’ve been doing during your due diligence when you’re acquiring that business. They’ll go through by department, looking for areas of improvement to create a whole battle plan.

In marketing, they might look at the highest ROI channels when it comes to actually bringing in revenue, and they’ll cut the vanity ones. They might keep a few experimental ones that are ongoing and see where that leads, but they’ll cut everything else—right? All the fat off the marketing channel budget.

And marketing budgets, by the way, tend to be the biggest expense for non-compensation expenses in a business, because you need a lot of money to go and discover something that’s going to work, right? Which is often why marketers get hit the hardest during downturns because it’s the easiest place to cut money.

But you always want to be careful with cutting money in marketing because if the marketing is good, that means you’re also cutting growth. So yeah, you might save and have really good profit for the next two or three months, but the leads might start drying up.

So you get to month four, month five, month six, and all that marketing snowball you had for the last three months—it’s gone, right? So you will now be depressed because it’s hard to get that momentum going again.

So something to be careful with marketing.

But in general, private equity people go in and cut the vanity channels. One way they do this is they’ll look at what is known as LTV-to-CAC ratio: your lifetime value versus your customer acquisition cost.

You want your lifetime value to at least be a 3-to-1 of your costs. So LTV 3, CAC 1. If you spend $1 and you’re making $3, that tends to be a pretty healthy ratio.

So that’s one good way, no matter what the marketing channel is, to say: am I getting a 3-to-1? If you’re not, then maybe we need to look at this. It might not even be that bad of a channel—maybe you need to go in there and fix some stuff, tweak some stuff, all that kind of good things.

But that rule of thumb: look at the LTV to CAC and decide if that ratio makes sense to you with what you know about that marketing channel.

Now when it comes to operations—which kind of falls into marketing too, because there are operational processes inside of marketing as well—but really, this comes down to your fulfillment: what you have to do every time you sell something.

I always say marketing can only make the promise that operations can actually deliver upon. In fact, I often think marketing should be slightly worse with the promise they make than what operations can deliver on, so that way operations can way overdeliver versus what marketing was promising the lead. I think that leads to a much better positive flywheel for the growth of your business.

But what you are looking at here—and what private equity would be looking at—is they’d be looking at every single process that your ops team is doing on a recurring basis. What is the process that they’ve done so many times they know it by the back of their hand? They never check the SOPs, never check the checklist, all that kind of stuff.

So they want to map all those recurring processes that you do into a document-delegate-automate scenario. Usually automate first, then delegate, but you will need to document all that stuff.

And often when you buy a business, a seller might say, “Oh, I have all these SOPs, checklists.” Usually they don’t, or they’re very poorly managed. So that’s going to be up to you to create, most likely, once you acquire this business.

Once you create that documentation, now we can start introducing tools—different AI processes, or just automation processes that have no AI in it—to see how much can we eliminate the actual manual labor going into this.

So we can take that employee from doing pretty intensive manual work to doing some more high-level work, more strategy work, and we let the machines process it all out.

So if you can’t do that, then the next step would be to delegate that, right? Delegate that to someone on the team to handle it.

Now if you’re buying a business, it probably already is delegated. It might even be a bit automated. But similar to the pricing thing I said earlier, if the business has been around for over five years, there’s a good chance there’s a bunch of bloat that has built up over the last two or three years as the business was growing, and the seller didn’t pay attention to that.

Now you can go and pay attention to it and introduce it to the company, help those employees out so they’re not doing the same mind-numbing task all the time.

So these are the type of things you want to look for. You want to trim these manual workflows that burn hours of time away, but offer no real strategic big value.

Every employee you have, you don’t really want them doing manual work. It’s somewhat unavoidable even in an age of AI, but as much as possible you want your employees, most of their time, being spent: “How do I solve this problem?” And once I solve that problem, “What’s the next problem for me to solve?”

And if they are being loaded down by a bunch of manual work, that also means they don’t have a lot of time to mentally give to the business to figure out: what’s the solution to this problem, right?

So I always want to get my employees in a position where they’re thinking more strategically about the scenario, more so than anything else. And the number one way to do that is help them get time back so that they actually can think about that.

And hey, even if you end up doing this and you don’t need those employees anymore—like, you know, private equity, right? Redundancies. So we’ve just been over that too.

All right, next is finance.

Obviously, finance is a huge topic in and of itself. But basically, you want some weekly dashboards, monthly dashboards. You want your cash flow forecast and what profit centers produced what, by what product—all that kind of good stuff. And it should be pretty easy for you to go in and look at this.

Some entrepreneurs will only look at this once every quarter, which I think is way too long. Some entrepreneurs will look at it once a month, which I think is okay. But I think the best entrepreneurs, they really stay on top of this number and they look at it once a week.

So your QuickBooks, your Xero, whatever you’re using—if you have an accountant, whatever—you should be looking at cash flow in, cash flow out, cash every single week: what is going on there?

Now, one caveat here, especially if you have a long sales cycle, like what we have at Empire Flippers, where it could take nine months, it could take 36 months before someone joins my newsletter and decides to sell a business with our team, right? If you have a long sales cycle, you don’t want to get so obsessed with the numbers that every week you’re changing something, right?

You’ve got to take a chill pill and be stoic: like, “Oh, this last month has been pretty much all red, but I know our pipeline looks really, really good, so we’re probably going to be all right.”

There have been many times where our seller submissions have just suddenly dropped off a freaking cliff, and there’s a tendency—especially early on in my career, less so now—where I get super freaked out.

Like nowadays, if it’s dropped off for three weeks, that’s when I will get concerned. If it’s trending down slowly—which we have a couple of KPIs like that with the whole SEO update that’s been going on—I start worrying more because it’s trending down slow. It’s not some catastrophic thing I need to fix right away; it’s something we have time to look at.

So what I’m saying is: you want to look at these numbers every single week, but you don’t want to get so obsessed that you’re changing everything. Because if you’re changing everything every single week, you never have the ability to see a long-term strategy play out to fruition.

And this is something that I see most often actually with marketing. So you’ll have a new marketing campaign and the financials tied to that marketing campaign, and you’re looking at it week-by-week.

And you’re like, “Well, we need to halt the brakes. It’s been like three weeks with these ads and it’s just not working.” It’s like, well, three weeks—depending on the budget and depending on what you’re selling—might not even be enough time to get data.

Marketing tends to work like: let’s go lose money so we can get data. Let’s see if we can break even based on the data we have. Then let’s see: can we actually make money based on what we’re able to do to break even?

It’s an iterative process, but that takes time and it takes money. So your financials and your marketing are always at a crosshairs here. You’ll never be able to do a long-term strategy and see it out to success.

So that’s all my soapbox there.

But in general, the reason why I recommend looking at your financials every single week is you really want to understand the pulse of the business, especially when you first acquire. Because there’s going to be ebbs and flows.

And if you look at one business—say with our seller submissions that were down for two weeks in a row—if you didn’t know any better, that might be a hair-on-fire moment. But if you’ve been around for a long time in the business, you know this happens.

And we’ll go on like a three-week spree where the seller submissions are through the roof as well. It’s just an ebb and flow of the industry. There’s nothing in particular happening; it’s just the way the industry sometimes works.

So you want to really understand the actual vibe of the business, so to speak.

All right, so the last thing that private equity does a lot—which is actually my personal favorite, and you’ll soon see why—is something that is known as inorganic growth.

Everything I just mentioned above is considered organic growth: helping the marketing, tweaking your sales, optimizing your operations—all that good stuff is considered organic in the private equity lens.

What is considered inorganic in private equity is where you go and acquire a business to grow this business.

Easy example: let’s say you’re a real estate agent/broker in a small town in America. You go on Facebook, you find a group that is dedicated to real estate in your small town or your metro, whatever, right? You go and buy that Facebook group for two grand, five grand, and now you have access to, say, 20,000 people that want to know about real estate in the town that you sell real estate in.

Do you see where I’m going with this? There are obvious synergies here. And that’s exactly what inorganic growth is in a nutshell.

So private equity will go and usually they’ll start, when they raise a bunch of money, they’ll go and look for what is known as a platform. A platform tends to be the biggest purchase they’re going to do in what is usually a 10-year fund.

This will be their big hurrah—something that is pretty, you know, quote-unquote massive for the fund. Depending on how much they raise, massive might be a million dollars. Typically it’ll be like five million and up for most private equity firms to buy a platform.

And once they have their platform, part of their strategy for growth is inorganic, where they will go and acquire these smaller businesses that they can then bolt on or tuck in to the actual business.

A bolt-on and a tuck-in are very similar: it’s just where you buy a smaller business to add into your business and they help each other out. Your 2 + 2 doesn’t equal 4 anymore, but it starts to equal 8 once you have the synergies.

Just like that real estate group that you bought on Facebook: you can sell sponsorships in there and maybe make an extra 5, 15 grand a year from that. But you can also sell real estate in there and make an extra 200 grand a year from that from your commissions, right? Depending on the group and how active it is, all that kind of good stuff.

So inorganic growth is basically using acquisitions to grow the business.

And I have a good buddy—he’s bought a ton of businesses. One thing he often says is: whatever problem you’re facing in your business, usually there’s an acquisition that can solve that.

Now, this is a bit like “I only have a hammer, so everything is a nail to me,” but in general, I do agree with him. If you need traffic, maybe you go and buy a media company or a newsletter or something like that that already has the traffic of your ideal customer profile, right?

If you need a sales team, maybe you go and acquire a company that has a really good sales team. But maybe they’re not so good at fulfillment, right? Maybe that’s the thing you’re really good at. So you combine those and suddenly you start seeing some pretty massive successes here.

And this leads into the whole roll-up thing, right? Every business you acquire—especially if what you’re acquiring already makes money—can have massive impact to the final valuation when you go to sell this monster you built.

So inorganic growth is usually the last step that private equity will take. I mean, not always. If they find a platform, they might have their feelers going out for that platform while doing the other segments I just talked about.

But inorganic growth, in my view, is actually the most powerful way for you to grow your acquisition.

Ironically, if you want to grow your acquisition, go acquire something else that’s related to it. It really is powerful.

Like I often joke that you’re one strategic partnership away from changing your life—maybe two or three—to have really revolutionary income in your business.

When you go and acquire a business that is related to yours that is already making money, it’s like a strategic partnership on steroids, right? Because not only do you make all the money that that business you just acquired makes, but you get all the benefits of the strategic partnership as well. And they’re now cross-pollinating, and everyone is very happy.

So that’s inorganic growth.

So again, think like private equity when it comes to your acquisition. Look at the redundancies. Look at raising prices and testing the price elasticity. Look at optimizing each different department—you do a deep dive.

Look at the financials every single week to really understand the vibes, the ebbs and flows of the business you’ve acquired.

And look at doing some inorganic growth.

Out of all the things I mentioned on here, the one that I think private equity probably uses the most is inorganic growth.

But when it comes to our own customers—the Empire Flippers buyers—the one that they use the least to grow is inorganic growth, which I think is crazy.

Like, they bought a business. Obviously, you believe in buying businesses, right? One of the ways to grow it really quick—the thing you acquired—is buying something else that has really good synergies.

So that’s it. That’s the podcast. I hope you guys enjoyed Greg rambling here.

If you’re watching on YouTube and you want to see Greg interview a bunch of different entrepreneurs from a wide variety of fields across the internet marketing world, definitely go to empireflippers.com/podcast.

And if you’re listening to this on the podcast, go to youtube.com/empireflippers to check out our YouTube channel. Give us a subscribe, and of course, as always, make sure you click the link in the description of either this episode or in the YouTube box to go and buy or sell a business to help Greg’s KPIs.

Talk to you later.

There you have it. I hope you enjoyed it. I hope it got you inspired at all the different things that are happening in this industry.

And of course, if you just want to buy a highly profitable business, you can always go to empireflippers.com/marketplace. Or maybe you want to make an exit of your highly profitable business—you can go to empireflippers.com/sell-your-site.

I’ve been your host, Greg. If you enjoyed this episode, make sure you leave a review. Give us a like, a follow. Share it across social media.

Talk to you all soon. See you on the next episode. Sam.