So I have been thinking to myself a strategy on how to build a billion-dollar company. When it comes to thinking up business ideas on how to become a billionaire, well the main strategy of course is to think up a business that you can build to the size of one billion in revenue that you will own. But some people may associate this with a business in one particular industry. One can have a "business" that makes lots of money that is really a holding company consisting of multiple separate, smaller businesses that are in completely different industries.
So for example, if you had a business that consists of ten $100 million companies, well then your holding company is essentially a billion-dollar enterprise. Your company could also own stock in part of another enterprise as well.
My personal goal is to build a multibillion-dollar company that consists of multiple sub-companies, but those sub-companies may themselves consist of even more subcompanies. There are actually quite a few businesses like this it seems. In fact, one way it seems to build a big company is simply to combine together a bunch of smaller companies.
Some examples of this are:
Assa-Abloy - this is a locks conglomerate that consists of around 90 locks brands. Basically it's just a giant holding company that consists of a bunch of smaller locks companies which it has gobbled up over the years. it continues to gobble up further locks companies (okay, maybe the term "gobble" is a bit bad because that implies that companies it has purchased were forced into being absorbed or else run out of businesses, which from my understanding is not the case here)
Quanta Services - this is a specialty contractor for the electrical, cable, telecommunications, and gas pipeline industries. Again, it is really just a holding company that consists of many smaller sub-companies it owns, which themselves sometimes consist of sub-companies, or they are a functioning company, but they own a few smaller subsidiaries as well. And I think a few of the subsidiaries of the sub-companies have their own subsidiary occassionally as well! Quanta Services apparently was started by taking a few electrical contracting businesses and combining them together under one holding company and then building from there. They eventually took the company public and have continued building, recently acquiring the nation's largest pipeline construction company.
LKQ - this is an alternative auto parts distributor. It specializes in recycled (i.e. used) auto parts, refurbished (i.e. rebuilt), and aftermarket collision replacement parts. It also has gotten into the above for truck parts as well it seems, and it does this in both wholesale and retail too. Like the previous two, it is made up of a bunch of small sub-companies, and like Quanta Services, it was started by taking four (I believe wholesale) used auto parts businesses and combining them, and then building up from there. Like Quanta, they took the company public and also like Quanta, they just recently made a very large purchase of what appears to be (or have been) the largest used auto parts retailer in the United States. They also have become a good aid to auto insurance companies in that auto insurance companies can rely on them for cheaper replacement parts for automobiles. LKQ also owns Keystone Automotive Industries, Inc, a leader in generic collision replacement parts for autos. They also own some wheel and headlight rebuilding companies too.
Consolidated Graphics - this is a holding company that consists of a bunch of independently-operating sub-companies; to quote from Wikipedia:
Companies under the Consolidated Graphics umbrella operate independently with their own management, sales force, and market presence. This business model allows these flexible, local printing companies to have the purchasing power and resources of a well managed national corporation.
LVMH - this is the mighty French luxury goods conglomerate. they own all sorts of major luxury goods brands, everything from jewelry and watch companies, to spirits companies, to handbag companies, etc...they are a good deal responsible for having commoditized luxury over the last few decades actually (separate discussion though).
Jarden Corporation - this is a niche consumer products company; basically it is a conglomerate of smaller consumer products companies that focus on niche areas.
Automation - this isn't a company here, I am referring to the automation industry. Basically this is a very fragmented industry, and many, if not most, of the companies in it are small, specialized operations, usually no more than $50 to $100 million in revenues. It can be very difficult for companies to grow to a large size in this industry (though some are), however one strategy one can follow is to combine a bunch of smaller companies together to form one large company, which some companies have done. Two such companies are Ametek and Spectris.
Wayne Huizenga followed this strategy of building companies by combining a bunch of smaller companies together with first Waste Management, then Blockbuster, then Autonation.
Rollups
During the 1990s, this became very popular in doing what became known as rollups, basically an entrepreneur would get capital and funding and then proceed to buy up a bunch of smaller companies and combine them and then take the operation public. The problem with this is that it is a business model that can be prone to fail, and thus rollups had their own little bubble right alongside the Dot Com bubble. When the Stock Market crashed in 2000, many rollups went bust along with the Dot Coms.
Rollups can work, the problem with them is that they are not quite the same as forming a company that is an actual functioning company and then gobbling up a bunch of additional companies (and this in itself is not guaranteed to work either). Basically a rollup just takes a bunch of independent companies, combines the under a holding company, and then expects the operation to work.
Wellllll....that depends. One flaw can be in the structure of the overall operation. One incentive for the people who own the sub-companies being absorbed into the organization is to let them continue to run their operation as part of the larger overall organization, but to grant them stock in the holding company. But if the owners each own large shares of stock, and thus have a lot of say in the managing of the company, and each of them also have an equal say, problems can occur. For example, what if the individual sub-companies don't get along well? What if they disagree? What if some company owners think other company owners are total idiots?
If the rollup is being funded by venture capital, and the company consists of say ten shareholders, nine individual company owners with a 10% stake, and say yourself, the entrepreneur, with a 10% stake, well it is this kind of stuff that can cause a rollup to fail. If the venture capitalists also demand a stake in the company, that can complicate things even moreso. Whereas if you have a main, large company from the get-go, that then starts making acquisitions, well this can be more solid, because you then have a functioning business from the beginning that is just buying up other companies. And oftentimes when this happens, although the original owners may be compensated fully or partially in the form of stock in the main company, they likely will not have the kind of sway like in a rollup. They would instead likely stay on to continue to run their company as part ofthe larger organization, or stay on for awhile as an advisor to help the bigger company integrate their smaller company in.
I could see a rollup being a lot less prone to problems perhaps if it is smaller (say four companies at the start) and one person has the authority to override the others if need be. So for example you the entrepreneur hold a 51% stake in the holding company, and the four companies in the organization hold together 49%. Thus if push comes to shove, in the end, you can overrule everyone if need be and centrally direct the organization.
And if you have the money, you could always just own 100% of the operation from the get-go, purchasing the sub-companies completely from the owners, so that you answer to no one but yourself. If you have venture capitalists involved, you will have to answer to them, but at least then it is just you and the venture capitalists, not you, a bunch of scattered company owners, and the venture capitalists (by "venture capitalists," I in general mean a venture capital firm consisting of multiple partners). Venture capitalists or no venture capitalists, if you take the company public, well then you have various shareholders that you now have to answer to, but it is usually different from the rollup model, because now you'll have many shareholders as opposed to just a dozen or so that can all argue on how to run the company. These many shareholders will expect you and the professional management of the company to then work to increase the quarterly share price of the company.
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