Today, I read "How to Make a Few Billion Dollars" by Brad Jacobs. I will split this into three parts, but for now, I will keep the notes private. As stated several times before, this Substack is mainly for my own learning purposes and taking notes. If someone wants to read them and learn from them, then go ahead. I will keep them private for now due to the sheer detailedness of the notes and how new the book is, and I want to keep it fair. Still, I think it's a great book, and everyone should go ahead and read it.
How to rearrange your brain #1
Challenge Conventional Thinking:Conventional thinking may fall short; hence, it's crucial to learn to think differently.
Engage in Thought Experiments:Work with thought experiments to stimulate creative thinking.
Radiate Love Vibes:"It's much easier to generate significant success with a team that resonates with love vibes." Utilize choices like gratitude conversations, recognizing that "much of business success comes from maintaining a positive mindset."
Cultivate Positive Expectations: "Expect positive outcomes; however, maintain a healthy fear of failure to stay sharp."
Expand Possibilities Through Meditation: Similar to Rick Rubin, use meditation to let attention flow into the brain and expand possibilities.
Embrace Problems: Embrace challenges in business, adopting the mindset of the Chinese Farmer who accepts everything that comes their way—the good, the bad, and the ugly.
M&A can be categorized into four quadrants:
Big, Low Risk:Highly sought after, but they are rarely found.
Small, Low Risk:Exist but often not worthwhile.
Small, Hairy:Odds are against you, and the potential reward is small.
Big, Hairy::These are the deals that yield significant profits. "Find big, hairy deals; that's where the money is." Try to mitigate or quantify risks; if not possible, consider moving on.
Remember to adjust your beliefs when the facts change.
Avoid quick judgments or premature conclusions.
Think big, stay humble.
How to Get the Major Trend Right
“You can mess up a lot of things in business and still do well as long as you get the big trend right” - Ludwig Jesselson
The industry should have scalability so you "can just show up" and make progress.
Research as much as possible, compare your multiples to those of companies you want to acquire. You can also look at sectors where some players get forced out for change. (like landfills in the 90s due to new regulations many had to sell them)
Identify noise and step over it.
Talk to customers.
HOW to do M&A without imploding
Acquisitions are the best way for scaling up due to greater market share and locations.
“I like big industries because even a small chunk of a huge, growing industry is still big.”
Look for sectors/industries with "obscene profits" and ask as many people for advice as possible.
Scalability is one of the most important things.
Integrate vertical business.
Buy businesses that have multiples that are a lot lower than your own, then improve operations.
Avoid going head to head with big M&A.
Be a big fish in a small pond.
Brad first rolled up the landfills, and with this cash flow, brought the collection companies.
Mechanics of Buying a Company
Take zero growth in earnings as the baseline and then make your assumptions for revenue growth and margins. Also, calculate the cumulative and annual cash flow for the next 10 years – all need to be higher than the current.
The more data from a variety of data points and sources that look good, the better. Define upside and downside scenarios. I want deals where the downside is still good for the company, the base is excellent, and the upside is off the charts. The minimum needs to be the base; if not, move on.
Experience is really important for good deals. Only hire management consultants if their help is at least 10 times their fee. “How will doing this deal contribute to the two main drivers of shareholder value, which are pleasing customers and propelling financial results?” “How will doing this deal convince more customers to wire money from their bank account to ours?”
Bigger is not always better; understand the pros and cons.
Cover your flank when buying or selling; it's the stuff left and right of the field that kills you.
Move with Speed:
Do a lot of research, and in the second meeting, state what you want to pay, terms, and present the definitive agreements. "This will get their attention."
"The deals I have avoided have contributed more to my success than the deals I have done."
Understand the target's strengths and weaknesses.
Moving faster will give you an edge.
Talk to multiple acquisition candidates to maintain speed but alleviate pressure to "do the deal.
Brad Jacob Questions
What will be the drivers of profitable growth in this business over the next five to ten years?
What do we have to believe in order to be confident we are going to achieve that growth?
Are the assumptions underlying these beliefs reasonable or easily derailed?
Are there big hockey sticks to the growth or revenue and margin without credible explanations for them?
Can we accelerate scale more rapidly and at a much lower cost base by deploying AI, automations, or robotics?
What are the synergies we can expect from the integration?
If the operational execution isnt up to par, is there something we have the capability to rectify through training and/or our technology?
What are the readundant positions,overhead, and real estate cost?
What procurement saving can we realize from the added scale?
Is there an opportunity for cross-selling to the rest of our company?
What is the level of morale in the organization?
Are the right people in place,with an effective organizational chart?
Where might they be overstaffed or understaffed?
Is the salesforce top-notch, or is there an opportunity to train them to be more effective? same is true for every other department
Are the compensation plans properly structured to motivate people to contribute to the business plan, or is that another opportunity to improve?
How do customers regard this business? Is pricing to high or too low?
Are there any trends in goverment regulations or political policies that could help or hurt the business
Outcomes
Ensure that the business plan is aligned with the acquisition plan.
Plan from the beginning on what you want to buy and how you will implement it.
Avoid deals that are dilutive to earnings.
Do not buy anything that is about to fall off a cliff (Time Warner ALO Deal).
Before finalizing an acquisition, build a "Playbook" on how to integrate the company.
Respect the Seller:
They are concerned about their own legacy, employees, and partners.
Don't play hard to get; let the seller know how excited you are and the price + terms that work for you. "Don't play the waiting game and let the seller wait."
Always be 100 percent honest with sellers. Don't play games.
3Ps:
Patient, pleasant, polite.
Before negotiations, set the price and the terms. For the rest the seller asks, try to say yes. "Set the big stuff."
Keep the A-players of the prospect and reach out to them, and don't renegotiate the price.
Culture:
Don't force-fit culture.
The goal is to buy companies with the same culture. Culture incompatibility can drain all the energy, especially when comparing results-oriented companies with those that stop answering at 4:59.
Talk to the top 15 people or so before buying; you can get a sense of them and some improvement ideas for your integration playbook.
Be Respectful to the People You Onboard from the Company You Buy:
This can't be faked. Keep an open mind, open ears, and listen.
Bring Everything Under One Ecosystem:
HR, CRM, enterprise platform, database for Salesforce management, KPIs dashboard, email systems, standardizing financial statements, operating reviews, budgets, incentive compensation plan; install accountability. Everything should be as clean and fast as possible.
Deploy each task to one person (there can be thousands of to-dos for the integration), and add monitoring progress. Improve your playbook with every task.
“Everybody has a plan until they get punched in the face.” - Mike Tyson. You need to catch these left hooks and counter.
Set priorities upfront and don't staff too thinly. Competitors will try to take your customers and staff when something changes.
Feedback Loops:
Use surveys, town halls, one-on-one interviews, and group meetings. Ask questions like, “What do you think the business could be doing better?” and “What should we not change?” Never shoot from the hip. Keep talent and provide generous exit packages when they aren't contributing.
Don't overpromise. "I'm only going to make one promise to you, and I promise this 100%: Despite trying my best, I'm going to mess up some things. So, give me a break, please, and give me some time to get it right. Also, feel free to tell me when I'm messing stuff up, and I'll listen to you. We are on the same team now."
