The Serial Entrepreneur vs. the Dealmaker

Today I will compare the strategies of the serial entrepreneur and the dealmaker. Both are worth studying because they have much to teach us about wealth creation. However, before we do that we will look at some important business concepts.

The Industry Pyramid

First of all, it helps to think of industries as four-level pyramids. (Frankly, it helps to view everything in life as a pyramid with those at the bottom either striving to move upwards or resigning themselves to the ignominy of a life at the bottom.) The typical large industry will have at its peak a few huge Fortune 500 public companies. The next level will have the so-called “upper middle-market” companies. The level after that will have the so-called “lower mid-market” companies. At the base you have  small businesses. The numbers of participants are at their greatest at the lowest level and then rapidly shrink as you move up the pyramid.

Most of us have to begin at the bottom level and find a way to claw our way upwards on sheer grit and determination at first. Once you are on the second level life starts to become easier in certain ways. For example, suddenly you have real money to work with and hire professionals for your team. You are no longer bootstrapping it and teetering on the verge of collapse every month.

Your objective as either an entrepreneur or dealmaker, should you choose to accept it, is to make your way up the pyramid as far as possible before the clock runs out. If you are lucky, your clock will run some 70 plus years. Then it’s game over, lights out.

True Wealth Is Created by the Big  Bang

Here’s the second helpful concept. In most cases, the “big bang” in wealth creation comes when the entrepreneur or dealmaker sells his or her company. While they may enjoy a nice lifestyle as owners, including generous salaries and benefits, and a leased luxury automobile, the real wealth arrives when they finally sell the company for millions of dollars that go straight to their net worth.

The lesson here is that business is ultimately about creating an asset of real value that can be sold off to a deep-pocketed buyer.

The Industry Escalator

The third helpful concept to utilize in your thinking is that of an industry escalator.  As a businessperson you need to devise an “escalator” to take you up the pyramid one level at a time. The escalator is simply a system that you polish and perfect over time to maximize its effectiveness. I use this metaphor in the Tycoon Playbook because in today’s world a business is either moving up or down the industry escalator. There’s little opportunity left for just standing still.

Here is where  serial entrepreneurs and dealmakers begin to diverge because they employ different types of escalators. Let’s first look at the serial entrepreneur’s escalator for wealth creation.

The Serial Entrepreneur Strategy

Serial entrepreneurs are frequently found in dynamic fast growth industries such as technology, software, ecommerce, biotechnology, etc.  The way they take advantage of theses industries is by starting and building built-to-flip companies. By “built-to-flip,” I mean companies that are designed from the get-go to become attractive acquisition candidates after two or three years to bigger companies further up the industry pyramid. You will see some entrepreneurs do this over and over. Hence the name “serial entrepreneur.” Each sale of a company increases their capital and enables them to move further up the pyramid.

The Dealmaker Strategy


The Deal-maker

Now let’s look at the escalator used by dealmakers who also, in most cases, have to start at the bottom level. The key distinction between the serial entrepreneur and the dealmaker is that while the former works with a single company at a time the latter will work with multiple entities simultaneously. To illustrate the difference, I’ll share a story from my past.  I was working as a broker with a small intermediary firm which secured a client running a small specialty travel business down in the Caribbean. The owner had decided that he wanted to sell the company and move back to the U.S.A. to marry and be closer to family and friends. My job was to find a buyer. Unfortunately due to its size the business was in a no man’s land where it was too big for most individual buyers and too little for most corporate buyers a level or two up the industry pyramid. So we started brainstorming possible solutions. One idea was to create a bigger entity by merging the client with a similar company. After a month or so we found a candidate of the same type with an older owner who simply wished to retire. Both parties agreed to a merger that would double the size of the for-sale entity over night. However, it still wasn’t large enough to reach the threshold of the large companies engaged in acquisitions. So we continued looking for a third company. We finally found another competitor whose young owner indicated a willingness to stay on board as the manager of the three merged companies. At this point we finally had an entity that was three times the size of the original. Now the big boys were suddenly interested in doing a deal. Long story short,  a deal went through and everyone was happy including the three sellers and the corporate buyer.

The dealmaker escalator looks frequently like this. They start off as the owner of one small company that they quickly bulk up with an acquisition or three, spruce them all up, and then sell the bundle to a larger entity. Then they do it again and again. The great thing about the bottom level of the industry pyramid is that there’s an endless supply of small ineffective companies that can be merged, improved, and flipped to a big financial or strategic buyer.

The best entrepreneurs understand how to employ both the serial entrepreneur and dealmaker strategies.

To find out more about more aggressive growth strategies, as well as the serial entrepreneur ones, click the link.

6 Responses to The Dealmaker Growth Strategy

  • That’s an eye-opener. To tell the truth I never really understood what the heck dealmaker meant.

  • My dad used to make his money by doing deals like you describe. Oftentimes he wasn’t even an owner but just a guy who got others to bring their businesses together and let him sell them.

  • Hi Peter,

    With beefing up the platform, doing LBO’s, you’ll place debt on the balance sheet. Even with the debt load, does this cause the “shark bait” to become an unatractive acquisition candiate for the shark?

    Example, You have a $10mill/annaul sales company and you buy 3 other companies to combine with it and now you have a $60 mill/annual sales company with say $15 million net. Out of the $15 mill, $7 mill goes to debt service, leaves $8 mill.

    With $7 mill for debt service, does this make the business a unattractive candidate to the big boys?

  • The big boys would probably have no trouble paying all cash for it with funds from the petty cash box. There’s really no way to tell what the financial picture will look like after the company is sold. All the existing debt could be erased.

  • Great article, thank you for sharing. This dynamic is exactly what I am pursuing currently. I have a small business, but currently working with a client as I am a M&A advisor for a lower middle market M&A. My client is now willing to seller finance the company as the pool of buyers identified is dwindling. Looking to get a deal done myself here, looking for some good feedback from the group.

    Thank you

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