The 9 Things I Learned About Business and Private Equity by Interviewing Adam Coffey (Click here to watch)E22
Here is what my team and I learned from this interview: (These are notes from team members, writers, sometimes AI, and even listeners who submitted what i learned loosely edited and shared here) - If it seems a bit crude, you're reading our notes, so. yeah. -Ron
Concept 1: Grow quickly for wealth.
Adam Coffey is a CEO, board member, best-selling author, for business council member, and acclaimed business speaker. He has had the honor of serving as president and CEO of three national private equity-backed service companies over the past 21 years. Two of the three he built, achieving enterprise value of over a billion dollars. His experience has taught him the importance of growing quickly for wealth.
The private equity world has changed drastically since Adam first started. Twenty-one years ago, there were only a few hundred private equity firms and only a few hundred billion in assets under management. Today, there are 6,000 firms and 5 trillion in assets under management. Adam was recruited to join this industry and he was initially unfamiliar with the concept of private equity. He was chasing money and title and saw it as an opportunity to become a president and CEO of a business.
Adam has learned that working with private equity is the epitome of business. While the Fortune 500 has a small number of people earning seven figures a year, the middle market private equity-backed companies have a much higher number. To generate this wealth, you have to take a slow-growth, mature company and quickly bend the curve to grow at about 30% a year and sustain that for a good five years or more.
This intense speed of change is necessary to generate the returns that private equity firms are known for. Adam wishes he had known this earlier in his career. He has learned that growing quickly is essential for wealth. Mergers and acquisitions are a big part of this as they can help a business grow quickly.
Adam Coffey is an inspiring, authentic leader who has achieved great success in the private equity world. His experience has taught him the importance of growing quickly for wealth. It is clear that this intense speed of change is necessary to generate the returns that private equity firms are known for. Adam's success shows that growing quickly is essential for wealth.
Concept 2: Fragmented market: opportunity.
Adam explains that private equity is a huge industry, with an estimated one point five trillion in capital committed to buying and selling companies. Private equity funds are organized into silos, with small funds buying small companies and growing them before selling them to the next size up. The size of a company that private equity will buy is determined by its EBITDA, or earnings before interest, taxes, depreciation, and amortization. Adam explains that the smallest tranche of private equity looks for companies with a minimum of one to three million dollars of EBITDA.
Adam also explains that private equity firms look for companies that have the capability to grow rapidly. He explains that in order to achieve a three to four times multiple of invested capital within five years, a company must grow at a rate of at least 30%. This rapid growth can be achieved through organic growth, but it must be sustained.
Adam goes on to explain that private equity firms look for fragmented markets. A fragmented market is a market where there are a lot of small companies owned by different people. He uses the example of the ancient yellow pages, which listed a variety of service businesses like landscapers, dentists, veterinarians, HVAC technicians, and electricians. If you can find these kinds of companies in every city in the United States, then it is a highly fragmented market.
Fragmented markets provide a great opportunity for private equity firms to buy and build companies. By buying a small company in a fragmented market, a private equity firm can quickly grow it and generate the returns they are looking for. Fragmented markets are a great opportunity for private equity to make money, and they should be taken advantage of.
Adam's experience in the private equity world has given him a unique perspective on the importance of growing quickly and taking advantage of fragmented markets. His insights provide a valuable lesson for entrepreneurs and business owners who are looking to grow their wealth. Fragmented markets provide a great opportunity for private equity firms to make money, and they should be taken advantage of.
Concept 3: Buy and build for success.
Adam suggests that entrepreneurs should focus on buy and build strategies in order to ramp up their growth profile. This involves buying smaller companies and then combining them to create a larger, more profitable entity. This approach can be especially effective in fragmented markets, as it allows entrepreneurs to take advantage of economies of scale. Additionally, it can be used to increase profitability through process improvements and investments in technology.
Adam also emphasizes the importance of having a strong growth story and a charismatic leader. Private equity firms want to invest in entrepreneurs who have a vision and the drive to make it happen. Having a growth story and a plan for the future can be a major selling point for potential investors.
Finally, Adam emphasizes the importance of creating a timeline for success. He suggests that entrepreneurs should aim to build their businesses within three years, as this is often the amount of time that private equity firms are willing to invest. Additionally, he suggests that entrepreneurs should build an acquisitions and mergers team to help them take advantage of opportunities in the market.
In conclusion, buy and build strategies can be a great way to grow a business quickly and take advantage of fragmented markets. By having a strong growth story and a timeline for success, entrepreneurs can attract the attention of private equity firms and create wealth for themselves. Adam's advice is invaluable for anyone looking to make the most of their business opportunities.
Adam is an entrepreneur and CEO who has successfully implemented buy and build strategies to grow his companies. After 21 years of being a CEO, he made a career pivot and started the CEO Advisory Guru, where he consults to private equity firms, private equity portfolio companies, and founders who are building to exit. He works with multiple companies at the same time, which allows him to gain new knowledge and tackle different challenges.
Adam explains that buy and build strategies are popular right now because there is a lot of capital available. He notes that there is currently five trillion dollars in capital and one point five trillion in committed capital looking to buy companies. With high multiples being paid, it is a great time to be a seller.
Adam recommends that entrepreneurs looking to take advantage of buy-and-build strategies should have a strong growth story and a timeline for success. He notes that private equity firms are looking for companies that are up and running and can be grown quickly. He also advises that entrepreneurs should be prepared to do their own research and due diligence to ensure that the companies they are looking to buy are a good fit.
Adam also emphasizes the importance of understanding the industry you are looking to buy into. He notes that understanding the nuances of the industry is key to success. He recommends talking to people who have been in the industry for a long time to get an understanding of the industry.
Overall, buy-and-build strategies can be a great way for entrepreneurs to grow their businesses and create wealth. With the right knowledge and understanding of the industry, entrepreneurs can take advantage of the current market conditions and create a successful buy-and-build strategy.
Concept 4: Adapt to changing economy.
However, in today's ever-changing economic climate, it is important for entrepreneurs to be able to adapt to changing conditions. As businesses are increasingly affected by the pandemic, entrepreneurs must be able to think outside of the box and come up with creative solutions to ensure their long-term success.
One way for entrepreneurs to stay ahead of the curve is to stay up-to-date on the latest industry trends and developments. By staying informed, entrepreneurs can take advantage of new opportunities and stay ahead of the competition. Additionally, entrepreneurs should also be open to exploring new industries and taking on different types of assignments. By doing so, entrepreneurs can gain new insights and skills that can help them better understand the current market conditions and develop a successful buy and build strategy.
Another way to adapt to changing economic conditions is to consider the current consumer spending habits and business to business spending habits. For example, the shift to remote work has had a significant impact on the commercial real estate industry. With more people working from home, companies are looking for less square footage and more hybrid, shared workspace or hoteling type space. As a result, entrepreneurs in the furniture business should consider refocusing their strategy to cater to the needs of those working from home.
Finally, entrepreneurs should also be aware of the potential risks associated with certain industries. For example, retail, large-box retail can be a tough industry to navigate in today's economic climate. With malls and movie theaters dying before the pandemic, and COVID accelerating the death, entrepreneurs should be cautious when investing in these industries.
In conclusion, it is important for entrepreneurs to be able to adapt to changing economic conditions in order to stay ahead of the competition. By staying up-to-date on the latest industry trends and developments, exploring new industries, and considering the current consumer spending habits and business-to-business spending habits, entrepreneurs can create a successful buy-and-build strategy. Additionally, entrepreneurs should also be aware of the potential risks associated with certain industries in order to ensure their long-term success.
Concept 5: Filter acquisitions for sustainability.
When it comes to acquisitions, it is essential for entrepreneurs to filter their acquisitions for sustainability. This means that entrepreneurs must consider the current economic conditions and the potential risks associated with certain industries. Additionally, entrepreneurs must also consider the current consumer spending habits and business-to-business spending habits in order to determine if the acquisition will be beneficial in the long run. Furthermore, entrepreneurs should also consider the potential for disruption in certain industries, as well as the potential for distressed funds to invest in certain industries. Finally, entrepreneurs should also be aware of the potential for industry reports to provide insight into the industry.
By filtering their acquisitions for sustainability, entrepreneurs can ensure that they are making the best decision for their business in the long run. By considering the current economic conditions, potential risks associated with certain industries, consumer spending habits, business-to-business spending habits, potential for disruption, and potential for industry reports, entrepreneurs can create a successful buy-and-build strategy that will ensure their long-term success.
Concept 6: Be disciplined when buying companies.
Being disciplined when buying companies is crucial for entrepreneurs looking to grow their businesses. It's important to have a clear understanding of what good looks like before ever going out and looking at something real. This means taking the time to talk about what it is they're trying to buy and what good looks like. It's essential to be disciplined when screening potential companies to buy, as one bad purchase can derail a management team for multiple years. It's also important to remember not to buy fixer-uppers, as it can take years to recover from the energy put into fixing a bad acquisition.
When entrepreneurs are looking to buy something, it's important to define what good looks like upfront. This includes considering the company's revenue, profit margin, union/non-union status, customer concentration, verticals served, and the personality of the entrepreneur. Once these criteria are established, entrepreneurs can apply filters and focus their energy and effort on those that clear their hurdles. This will dramatically reduce the chances of making a bad acquisition and improve the potential for a better outcome.
Finally, entrepreneurs should remember to be aware of deal heat. This is when entrepreneurs get excited about the deal itself and make it work. This can lead to bad acquisitions if the entrepreneur is not careful. It's important to remember that if it doesn't work, it doesn't work.
In conclusion, entrepreneurs should be disciplined when buying companies. By taking the time to understand what good looks like and applying filters to their acquisitions, they can ensure their long-term success. They should also remember to be aware of deal heat and not be afraid to say no if the deal doesn't make sense. By taking the time to be disciplined when buying companies, entrepreneurs can ensure their long-term success.
Concept 7: Buy multiple smaller companies.
Buying multiple smaller companies is becoming a popular strategy for entrepreneurs looking to build a larger business. This strategy is often referred to as “buy and build” and involves buying several smaller companies and combining them to create a larger, more profitable entity. This strategy can be beneficial for entrepreneurs because it allows them to scale quickly and efficiently, while also reducing risk.
The key to success when buying multiple smaller companies is to be disciplined. This means understanding the industry and the company you are looking to buy, as well as having a clear understanding of the goals and objectives of the business. It also means having a clear understanding of the financials and the potential to scale.
When buying multiple smaller companies, entrepreneurs should also be aware of “deal heat.” This is when a company’s valuation is higher than it should be due to the competitive nature of the market. It is important to be aware of this and not be afraid to say no if the deal doesn’t make sense.
Finally, entrepreneurs should also remember that buying multiple smaller companies is a long-term strategy. It will take time to scale and grow the business, and it is important to have the patience and dedication to see it through. By taking the time to be disciplined when buying companies, entrepreneurs can ensure their long-term success.
Concept 8: Build a network of advisors.
Building a network of advisors is a key part of any successful business. Whether it’s a small business or a large one, having a team of advisors to offer guidance and support can make all the difference. Advisors come in many forms, from financial advisors to legal experts, to industry professionals, and more. They can provide valuable insight, advice, and resources that can help entrepreneurs make the right decisions and achieve their goals.
When building a network of advisors, it is important to select advisors who are experienced and knowledgeable in the particular industry. It is also important to select advisors who have the same goals and values as the entrepreneur. Having advisors who are aligned with the entrepreneur’s vision will help ensure that everyone is working towards the same objectives. Additionally, it is important to select advisors who have the time and resources to devote to the business.
Finally, it is essential to remember that a network of advisors is not a “set it and forget it” situation. It is important to stay in touch with advisors and keep them up to date on the business’s progress. This will allow the advisors to provide the most relevant and timely advice and resources. Additionally, entrepreneurs should remember to thank their advisors for their time and effort.
In conclusion, building a network of advisors is essential for any successful business. By selecting experienced and knowledgeable advisors who are aligned with the entrepreneur’s goals, and staying in touch with them, entrepreneurs can ensure that they have the support and guidance they need to reach their goals.
Concept 9: Achieve success faster.
In today’s world, it is possible to achieve success faster than ever before. However, in order to do so, entrepreneurs need to understand the importance of having a network of advisors to help them navigate the complexities of running a successful business. By leveraging the knowledge and experience of experienced advisors, entrepreneurs can reduce the amount of time it takes to reach their goals. Furthermore, having a strong network of advisors can help entrepreneurs stay focused and motivated, which can further accelerate their success. Finally, by staying in touch with their advisors, entrepreneurs can ensure that they have the support and guidance they need to reach their goals.
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