Changing My Mind & What's Next
The four things I changed my mind about
It’s been a few months since I’ve been able to write and the reason is that I’ve been heads-down on a new business. I’m excited about it.
In this post, I talk about what that business is and why I’m pursuing it.
To cut to the chase: I’m starting “home accessibility” business with a partner. We’ll be installing home modifications like stairlifts, wheelchair ramps, and grab bars for seniors who are “aging in place”.
Those that know me well might point out that this contradicts some of the ways I used to think about business ownership (starting something? project-based work? partnering? B2C?).
As my wife can tell you, I change my mind a lot. It’s a fault, but it also serves me well.
So, in an attempt to frame up this update (and reassure myself of my own flip-flopping), I’m going to explain the four things I’ve changed my mind about in the past year that got me to this point right now launching this business.
The 4 things I changed my mind about
Starting a business makes more sense (for me, today) than acquiring one.
If you want to go fast, go alone. If you want to go far, partner up. I want to go far.
Recurring revenue is overvalued. What actually matters is predictable cashflow.
Complex businesses can be better than simple ones.
1) Starting a business
(This is the longest one, hang with me)
My career permanently changed during my honeymoon in July of 2021. Since I was in charge of booking the hotels, they were booked late. Since they were booked late, the only hotels available were the expensive ones. Two things happened.
I got to talking to some of the other people staying at the hotel. They didn’t appear bothered by the nightly room rate. Almost all of them owned small businesses.
“Buy Then Build” by Walker Deibel happened to be next up on my reading list. I read it in 2 days by the pool.
On that trip, I committed to spending my career buying and growing small businesses. A few months later, I got started on a Smash My Trash franchise buildout, but kept my sights set on eventually acquiring a business that would be my “big bet”.
The 90-minute drive between my house and that Smash My Trash business turned out to be an ideal time to learn. I listened to countless books and podcasts from the world of acquisition entrepreneurship. For the first 30 years of my life, I didn’t know that it was possible for an individual person to buy an already-profitable business.
Like many others who catch wind of this, I was compelled by the benefits of entrepreneurship through acquisition: Put in a little equity, get an SBA loan, and voila—you own a profitable business. Someone else already did the hard work to get it off the ground, now you get to be the CEO, answering to no one and chasing uncapped upside. Compelling.
Here’s what changed for me.
Reversibility
By running my first business - and listening to everything Jeff Bezos has ever said - I’ve gained an appreciation for the significance of reversible vs. irreversible decisions. I now see that, as an employee, everything was reversible. No matter what happened, I could always resign and get a new job. That sounds cynical, and I’m glad I didn’t have this realization while I was employed. But it’s true.
I had no money on the line. No debt, no personal guarantees, no covenants. My signature was nowhere to be found on any 10-year agreements. I had nothing to lose.
When I dipped my toe into the waters of irreversibility, I didn’t really know what I was getting myself into. I signed a 10-year franchise agreement and personally guaranteed loans for my Smash trucks. I hired people whose livelihoods depended on my decisions. If I had the same appreciation that I now have for irreversible decisions, I might have never made the plunge into working for myself.
The thought of buying someone else’s business scares the shit out of me. It is one of the most serious and irreversible decisions you can make. Many people have made a lot of money this way, but I think the magnitude of risk in acquiring a business is generally underestimated.
Starting a business is a different proposition. My partner and I think this new business will work, but if we’re wrong, we’ll just shut it down. We’ll lose some money, but we won’t owe any. We’re not bound to a franchise agreement or long-term lease. We have the freedom to explore the opportunity without the mental and financial weight of irreversibility.
Plus, if it goes as well as we think it will, we can always choose to grow through acquisition later. At that point, we’ll know the right questions to ask in diligence, we’ll be more qualified buyers in the eyes of the brokers and sellers, and we may have access to off-market deals. If it comes time to make an irreversible decision, we’ll make it with confidence rooted in experience.
Starting a business is hard and it’s going to take a lot of unglamorous work. But I’ve come to believe that for someone like me - an industry outsider with time and capital to deploy - starting a business makes a lot of sense.
We’ll also be able to do it our way from day one.
Someone else’s mess
The stereotype of the acquire-able “boring business” invokes images of a fax machine, outdated paper processes, and unrealized growth. The promise for acquisition entrepreneurs is to get in there, modernize processes, invest in the obvious but neglected growth channels, and watch profitability take off. Of course it’s not that simple.
I met an acquisition entrepreneur recently who bought an appliance repair business. The key employee quit shortly after he took over. It was a nightmare. The previous owner knew this key employee for a long time and made him believe that he’d be next in line to own the business.
I’ve heard countless stories like this: sellers underrepresenting the transferability of their business, especially when it comes to relationships with suppliers, employees, and customers.
I’ve heard business buyers talk about trying to optimize an antiquated process only to realize that things were done that way for some important, but non-obvious reason.
The through-line of these cautionary anecdotes is this: small businesses are “loosely functioning disasters”, as Brent Beshore would say. They have the owner’s dirty fingerprint all over them. Most small businesses are not the finely-tuned, durable, free-standing machines that a financial model might lead you to believe. A small business is an extension of the owner’s life and personality.
I believe it’s impossible to know what’s going on inside someone’s small business until you’re in there yourself. The idea of taking over someone else’s creation, handling the transition, changing things intelligently without rocking the boat, and tactfully investing in growth is a daunting one. I don’t think I have the skills to pull it off yet. I know for a fact I don’t have the willingness.
Starting a business is different. Sure, we’ve had to buy a domain, set up the LLC, get a business license, make a website, and do a thousand other boring ass things that don’t directly create cashflow. But it’ll be our fingerprints on the business: our employees, our processes, our customers, our brand. It’ll be hard, but this version of hard is preferable to me.
The market
I’m not an investor in small business acquisitions, nor am I an active searcher, so I’ll keep this short and high-level. My strong sense is this: it used to be the case that you could buy a small business at a reasonable valuation, get a loan at a favorable interest rate, and immediately create value just by closing the deal. Growing the business would only improve the return.
This is no longer the case. Demand for small businesses has grown and interest rates have risen. But instead of valuations adjusting down from interest rates, they have adjusted up from the demand. This means that deals don’t pencil. In other words, it’s very hard to find business that have sufficient cashflow to cover the debt service. Business buyers need to either a) bring a bunch of equity or b) underwrite deals with the assumption that they will significantly grow the business. I don’t want to give up control, and I don’t want to bet my family’s financial security on growing some guy’s business once I take it over.
In a business buying market that has more demand than supply, I’d prefer to create a business from scratch.
2) Partnering
In my Smash My Trash business, I am the only active owner. My friend kicked in 15%, but I make the decisions and handle the day-to-day. In many ways, this has been amazing. I can move extremely quickly, do whatever I want, and importantly, shape the business in a way that suits my specific lifestyle (remember the dirty fingerprints).
For a long time, I thought I would continue to be a solo owner. Personal autonomy was a big motivator in my decision to own a small business in the first place, and I saw solo ownership as the way to get that. I wasn’t wrong. I’ve able to do things my way, work whenever I want, and build processes that serve my specific quirks and preferences.
But it also sucks. Now that I’m working with a great partner, I’ve become aware of a few things.
For one, I’m wrong a lot of the time. Almost daily, I’ll suggest something that my partner will push back on, and he’ll be right. This has unleashed nightmarish mental montages of all of my bad decisions with Smash My Trash that probably would have never played out if I had a good partner.
It’s also less lonely. In the 2.5 years of running my Smash business, I’ve had thousands of mini-sagas, catastrophic failures, hilariously bizarre encounters, and crazy coincidences that would be impossible to explain to anyone else. This contributes to the brutal loneliness of owning a business. Those stories live in my head, like trees that fall in the woods with no one around to hear. With a partner, these episodes turn into inside jokes and shared experiences that make the whole thing more fun.
I’ve also been amazed at how much can get done with two people working at it. Of course, there is some time spent deliberating, bullshitting, etc. but two people simply generate more output than one person. Go figure.
I also am fortunate to have a great partner named Mihir. He is insanely high-agency, smart, and cares more about winning than being right. We complement each other well and like working together.
3) Recurring revenue is overvalued
Recurring revenue is all I’ve ever known. Before getting into this boring business stuff, I worked at SaaS companies where recurring revenue is a given. I chose Smash My Trash as my first venture largely because of the recurring revenue. When I thought about my eventual “big bet” acquisition, recurring revenue was a requirement.
A few months ago, I read this post by a smart guy named Johannes Hock who bought an artificial turf business:
His main point is this: the thing that actually matters is predictable cashflow. I think he’s right. Recurring revenue is one great way to generate predictable cashflow, but it’s not the only way. It is, however, the most sought-after way. As a result, recurring revenue businesses are highly-valued (expensive to acquire) and competitive (everyone else wants your customers). This begs the question—how else can a business achieve predictable cashflows?
One way is to tap into bottomless distribution channels that continually supply customers. With this new business, we’ll work to build relationships with the VA, state waiver programs, and other agencies that pay for people’s home modifications. If we do our job, these institutions will provide us with a durable stream of demand for our service. The VA, to take one example, will resemble a recurring B2B customer. We’ll nurture the relationship, deliver a great service, and have predictable cashflows as a result. But because we won’t be servicing them directly, it won’t be considered “recurring revenue”, and we therefore won’t have to compete as much with the kinds of people who would be willing to overpay for it.
4) Simple businesses are best
I was drawn to the simplicity of Smash My Trash. Especially as a first-time business owner, a simple model with minimal employees and only a few types of relationships (customers, employees, and franchisor) appealed to me. It made sense that someone green like me should run an “easy” business. As I started thinking about my next move, simplicity - like recurring revenue - was still a requirement.
But I’ve come to realize that simple isn’t always a good thing when it comes to building a valuable company.
For one, simple businesses invite more competition. If a business is simple for anyone to run, then anyone will.
But also, when there fewer dimensions on which you can compete, price becomes the de facto differentiator, which drives down margin for everyone.
This new business is complex. We need a contractors license. We’ll have relationships with manufacturers, employees, customers, payers, and referral partners. We’ll have to dabble in construction. We’ll have to hire and trained technicians who will install all kinds of products in an endless number of unique homes and situations. We’ll have to understand the nuances of insurance, state waiver programs, and other government funding options. We’ll have to become experts in home safety so we can deliver a quality service.
Maybe I’m justifying a decision, but I think complexity is a feature in this context. There are simply more axes on which we can win against the competition and build real value.
As always, I go back to the “7 Powers” framework: the 7 ways in which companies can achieve lasting returns relative to the nearest competitor (Branding, Process Power, Network Economies, Scale Economies, Cornered Resource, Counter-positioning, and Switching Costs)
In a complex business, more powers are available and it’s possible to build a strategy around more than one of them.
What hasn’t changed
I want to close by mentioning four areas where I’ve NOT changed my mind, and actually strengthened my view.
Early career entrepreneurs are well-suited to winning by brute force effort
One appealing version of “simplicity” is a service offering with a “binary outcome”
“Physical world” businesses are a ripe and exciting opportunity
A large and growing market solves a lot of problems
1) Brute force
I believe that financial returns are generated with a combination of three inputs: effort, capital, and risk. Effort is work, capital is money, and risk is the probability of losing money.
If a return is (Money/Time), then this can be thought of as:
Effort (x) Capital (x) Risk = (Money/Time).
Not a novel idea, but this framework helps me think about a career progression that aligns to the inputs. It makes sense to me that an entrepreneur should start by focusing on effort, then using capital, then emphasizing the risk element.
Early on, without much capital or experience, someone like me is best off turning raw effort into value. I am willing to do the hard, unglamorous work involved in solving problems for people and earning a profit: getting hands dirty, hiring, firing, selling, dealing with fire drills, etc. This means being an “operator”, which is the lower-status, unglamorous, Junior Varsity version of “investor”.
The next step in the progression is capital. Once someone has made some money by pounding the pavement, that money can be funneled into investments that reduce the effort required. This might mean hiring people to take on the dirty work or investing in growth channels that make the business larger, more stable, and therefore less demanding.
The “risk” input is about reducing risk. More specifically, it’s about investing capital in a way that would be highly risky for someone else, but isn’t for you. This happens when an entrepreneur becomes experienced enough to minimize risk in their area. Risk—or the ability to de-risk—is a function of experience. When Brad Jacobs was buying up equipment rental businesses in the 90s, he was working hard and deploying capital, but an enormous amount of value was generated because of the fact that he knew how to choose, acquire, and integrate those businesses better than anyone else. He de-risked it by way of his experience, and United Rentals was the result.
Starting a home services business in an unfamiliar industry is a deliberate choice to focus on the “effort” input. If it goes well, there will be an opportunity to deal in capital and risk later.
2) Binary outcomes
I mentioned that simple businesses aren’t always better. But there’s one way that I think simplicity does matter: whether or not the service being offered has a binary outcome. With a binary outcome, the result of your work is either “done” or “not done”.
Landscaping is not a binary outcome business. The guy who mows your lawn might miss a spot, forget to trim something, or maybe you just think he does a bad job. As an owner of a business with a non-binary outcome, you are subjected to customer complaints, rework, challenges in training new employees, and more.
Tree removal is a binary outcome business. The tree is either gone or it’s not. Obviously things can go wrong, but for the most part, the service has a clear “yes or no” outcome. Binary outcome businesses tend to have a bunch of 5-star reviews and are more straightforward to operate, meaning the owner can focus on growth.
Our new business has a binary outcome. When we leave a customer’s home and collect a check, there will be a functioning stairlift, ramp, and/or grab bars in there. The customer will be able to move more safely and independently in their home, and if we ask for a 5-star review, I expect we’ll get one.
3) Physical world businesses
A lot is said these days about “boring businesses”. Blue collar, old-fashioned businesses are in vogue. I’m fully on board. But to me, the thing that actually matters isn’t that they’re boring (no business is boring) or blue collar, but that this type of business deals in the physical world.
There are three reasons.
Physical-world businesses will be resilient over the next 20-30 years. I don’t need to tell anyone about AI and the technology landscape. And it doesn’t take a genius to realize that the world of digital commerce - where fortunes have been made over the past 25 years - is about to change dramatically. But as far as I can tell, people will be hanging out in physical spaces for a long time. Those physical spaces have a long list of needs that I will be happy to solve, and I’ll be using AI and all that other stuff to do it.
Physical-world businesses exist within a favorable competitive landscape. This is the cliché, but true part. Business influencers are lining up to talk about the opportunity to modernize industries that still use fax machines. These people are cringy, and they make it seem easier than it is, but they’re directionally correct. Having spent my 20s competing with literal savants in Silicon Valley, I am convinced of the appeal of competing in niche, forgotten, and old school markets.
Physical-world businesses allow you to solve real, tangible problems. Maybe it’s just me, but there is a deep satisfaction that comes from delivering tangible value in a physical way. I first felt this with my Smash My Trash business; the service provides a clear and palpable outcome for the customer. In the new business, we’ll be walking into the homes of people who can’t get up the stairs. By the time we’re done and paid, they’ll have the ability to do so. There’s something great about that.
4) Large and growing market
There’s a lot of advice out there on investing and buying businesses. For some reason, it’s human nature to seek out silver bullets and hacks. I’m guilty of this. The more time I spend on Earth, though, the more I realize that the best wisdom is the boring stuff; the soundbites that you don’t even pay attention to because you’ve heard them a million times. Charlie Munger talked about this. “Take a simple idea and take it seriously.”
An example of an simple idea: if you’re going to devote your working life to a business, you might as well play in a large and growing industry.
This is a boring, obvious, and well-known idea that should be taken seriously.
By 2030, there will be more people over the age of 65 than people under 18. It’s the first time in human history. That’s a one-line thesis.
When you’re in an industry with rising tides, you limit your downside and maximize your upside, which I’m told is exactly what you want to be doing all the time.
The business we’re starting, Golden Home Access, has all of the attributes I talked about in this post. There’s a chance that I’m subconsciously retrofitting my criteria to this new venture. But I prefer to think that a few years of overthinking on long drives prepared me to spot this opportunity when it presented itself.
It’s going to be interesting. It’ll be hard and complex and we’ll learn a lot.
As always, writing down my learnings as I go will help me crystallize and pressure-test my beliefs. So if you’ve made it this far, thanks for reading. I’ll keep you posted on how this one goes along the way.
A quick note on Smash My Trash. That baby is still humming along. I’ve done a lot over the years to make the business run without me, and it’s working well with minimal headaches. If I play my cards right, I’ll either continue to let it cashflow or sell it, depending on the capital needs of the new venture.