A bootstrapped company can definitely grow to the point where million dollar revenues are common, but that’s not for everyone. If you intentionally want to keep your team small while maximizing both revenue and profit then a simpler route may be what I call “Empire Building”.
Empire Building is growing your revenue (and therefore profit) by acquiring other small, bootstrapped companies. This requires already having a product with substantial profit, probably at least $125k/year. Taking some of that yearly profit and investing it in other bootstrapped companies allows you to diversify your product portfolio and decrease risks related to a decline in your primary business, while increasing revenue and eventually (after the payback on the profit multiple) growing profits.
What Types of Acquisitions to Target
The types of acquisitions that make sense will vary between companies, but the targeted acquisition should definitely be complimentary to the abilities of your team and your overall manpower. It doesn’t make sense for a company with 5 people to buy a business that’s heavy on the administrative workload. If, however, you operate an affiliate marketing company with a couple of employees then adding a few new affiliate sites through acquisitions isn’t likely to be a burden on your team.
Things to Consider Before Making an Acquisition
Each acquisition is going to bring with it a management cost. You need to have a good idea of all of the management time, expenses, marketing effort, SEO effort, etc. that’s required to reach the stated profit. Due diligence is critical to being able to reach the same profitability for the target as the current owners. It’s always a good idea to get the sellers to agree to work with you for a month or so to help you get the acquired company functional on your end and on the road to similar profitability.
A different mindset is required when running multiple companies (or business, brands, whatever you call it). Your attention will be necessarily split between the companies, making it slightly more difficult to make progress on any of them. If your team is large enough for you to be able to assign product managers to each business then that’s a great solution. It’s easier to be the CEO of a company with 1 product making $200k per year than it is to have 5 products each making $40k per year.
Does your company plan to have multiple products, or do you focus on just one business? Is “Empire Building” a concept that makes sense to you? Would you be interested in a series about Empire Building?
Image credit: dimitratzanos on Flickr