So I am currently following a workout plan to build strength. I would like to gain muscle mass, the problem is that because I am one of those people with a super-hyper metabolism, it is extremely difficult for me to build muscle mass unless I eat a LOT in addition to the workouts, and it has to be good, clean food. Well I don't have the money for enough such food, I do have a bunch of big tubs of whey protein powder that my father bought for me though, but in order to be able to consume the protein necessary for serious mass building, I'd need to consume around eight shakes a day, and although this is a good powder (Optimum Nutrition), protein shakes still get sickening when you are on the fifth shake or higher.
So hopefully, I can ignore the mass and just mostly concentrate on building muscle strength, as muscle strength and muscle size are not per se the same thing, because a good deal of muscle strength relies on the nervous system. I am a weakling at the moment in terms of ability to lift heavy weights. I started out benching about 130 lbs, now I am at 150 lbs, a 20 lb increase, but I would like to get up to doing sets with 250 lbs, with at elast a 300 lb max. It will be very cool when I can where I can do multiple sets of six to eight reps with 300 lbs. I also intend to get where I can barbell squat and deadlift at least 300 lbs. These will provide an excellent base I think for then learning the Olympic lifts, and also for increasing my deadlift and barbell squat further.
A little later I am going to do my Monday workout, which consists of benchpress, military press, and pullups, we will see how my benchpress fairs this time. Hopefully I can maybe benchpress 160 lbs.
Monday, November 15, 2010
I Want to Build a Conglomerate
So my big entrepreneurial dream is to build a conglomerate. A BIG conglomerate though, like on the scale of General Electric, Siemens, Koch Industries, Tyco, 3M, Berkshire-Hathaway, etc...so I was doing some Googling on building a conglomerate, and basically most of the stuff that came up said that if you want to build a conglomerate, you are nuts. And also must have a healthy dose of ego.
Basically conglomerates were a thing of the past, mainly during the '50s and '60s, as they were seen as a way to reduce risk in a business, but now they are more rare as they are not seen as being able to create value for shareholders the way a business can that just focuses on a specific area can. This I can understand fully, I mean if General Motors starts trying to design and build flat-screen televisions, and Sony gets into the tire business, they probably will fumble.
But what about businesses where you basically have a holding company that owns wholly separate businesses that then report to the holding company. Perhaps these separate companies may share accounting, finance, legal, etc...services the holding company provides, but otherwise they operate wholly independent of one another...? (I would imagine they could each have their own such services as well, but this would be less efficient from the holding company's point of view). The thing is, if these companies operate wholly independently of each other, well I mean you will have different companies specializing in different things, all contributing to one "mother company," as opposed to one single company trying to work in multiple industries.
I was reading some articles that said conglomerates can work, but there is no guarantee, and they can take years to build, such as General Electric. Well of course, but no business is really guaranteed to work and the idea of building a conglomerate is not something you plan out to do overnight, that is something that would solely be a labor of love. I would want my conglomerate to remain private, like Koch Industries, so that I would not have to answer to any shareholder presures to increase quarterly earnings or anything like that. Kohler is another example of a conglomerate (albeit a smaller one) that is completely privately-owned and which has been built up over the years.
Another reason I was thinking a conglomerate could work is, for example, let's say you own a big trucking company. Let's say it is a billion-dollar company and privately-owned, such as J.B. Hunt. Now let's say you decide you want to start a new company, a brand-new consumer electronics company. This consumer electronics company will be under your holding company which also owns your trucking company. Now let's say you successfully build this consumer electronics company, for example as Vizio was built. So now your holding company is a conglomerate consisting of two wholly-separate companies, a trucking company and a consumer electronics company. How is this going to be bad? Your holding company is a conglomerate operating in two different industries, via two separate companies. Perhaps you could have them both share the same accounting, marketing, financial, legal, etc...services, but otherwise, they are separate.
Let's say eventually you add a third wholly separate business. I'd think a conglomerate like this, managed correctly, could do fine. Perhaps if publicly-owned, there might be problems, due to shareholders pressing for constant increases in quarterly earnings, which might cause the management to mess things up, but otherwise, I'd think such a conglomerate could work okay. A good idea would be to make sure that the member companies are mostly independent enough to be able to function though. If a member company cannot act on a market opportunity or respond to a problem without consulting with the holding company's management, then this will slow down the whole operation and turn it into one big, lumbering, slow bureaucratic machine, which would be bad. Instead, the member companies should be able to mostly operate independently, and just report to the holding company.
Basically conglomerates were a thing of the past, mainly during the '50s and '60s, as they were seen as a way to reduce risk in a business, but now they are more rare as they are not seen as being able to create value for shareholders the way a business can that just focuses on a specific area can. This I can understand fully, I mean if General Motors starts trying to design and build flat-screen televisions, and Sony gets into the tire business, they probably will fumble.
But what about businesses where you basically have a holding company that owns wholly separate businesses that then report to the holding company. Perhaps these separate companies may share accounting, finance, legal, etc...services the holding company provides, but otherwise they operate wholly independent of one another...? (I would imagine they could each have their own such services as well, but this would be less efficient from the holding company's point of view). The thing is, if these companies operate wholly independently of each other, well I mean you will have different companies specializing in different things, all contributing to one "mother company," as opposed to one single company trying to work in multiple industries.
I was reading some articles that said conglomerates can work, but there is no guarantee, and they can take years to build, such as General Electric. Well of course, but no business is really guaranteed to work and the idea of building a conglomerate is not something you plan out to do overnight, that is something that would solely be a labor of love. I would want my conglomerate to remain private, like Koch Industries, so that I would not have to answer to any shareholder presures to increase quarterly earnings or anything like that. Kohler is another example of a conglomerate (albeit a smaller one) that is completely privately-owned and which has been built up over the years.
Another reason I was thinking a conglomerate could work is, for example, let's say you own a big trucking company. Let's say it is a billion-dollar company and privately-owned, such as J.B. Hunt. Now let's say you decide you want to start a new company, a brand-new consumer electronics company. This consumer electronics company will be under your holding company which also owns your trucking company. Now let's say you successfully build this consumer electronics company, for example as Vizio was built. So now your holding company is a conglomerate consisting of two wholly-separate companies, a trucking company and a consumer electronics company. How is this going to be bad? Your holding company is a conglomerate operating in two different industries, via two separate companies. Perhaps you could have them both share the same accounting, marketing, financial, legal, etc...services, but otherwise, they are separate.
Let's say eventually you add a third wholly separate business. I'd think a conglomerate like this, managed correctly, could do fine. Perhaps if publicly-owned, there might be problems, due to shareholders pressing for constant increases in quarterly earnings, which might cause the management to mess things up, but otherwise, I'd think such a conglomerate could work okay. A good idea would be to make sure that the member companies are mostly independent enough to be able to function though. If a member company cannot act on a market opportunity or respond to a problem without consulting with the holding company's management, then this will slow down the whole operation and turn it into one big, lumbering, slow bureaucratic machine, which would be bad. Instead, the member companies should be able to mostly operate independently, and just report to the holding company.
Friday, October 22, 2010
Making a Company Recession-Proof
So one thing I have noticed it seems with quite a few of the wealthy (or formerly wealthy) with this economic/financial crisis and recession, is that a lot of wealthy people seem to be oblivious to the concept of not having all of your eggs in one basket. I think Felix Dennis said it best in his book, "How to Get Rich," when he mentions that you should not have all of your eggs in one basket, nor should you spread the eggs of one basket out, but rather, try to create multiple baskets of eggs! But even if one wasn't/isn't into creating multiple baskets but rather just watching what eggs they have, one would think people would have been a bit more vigilant.
For example, some people had all of their net worth (or almost all of it) tied up into one company, a company in an industry that was definitely prone to being devastated by a major recession. And thus the great majority of their hard-earned wealth disappeared due to their company getting decimated by the recession. If you have all of your net worth tied into one company, then you make damned sure that it is a company that is very strong and very recession-resistant. Otherwise, it is just too risky. Or, take a portion of your wealth and put it into other assets, so that you are not just tied to this one business you own.
Another example of bad thinking was all the people who entrusted their entire net worth to one guy. This is what many rich apparently did with Bernie Madoff. And even with entrusting it to multiple guys, you have to be careful, because some of those so-called investment managers simply entrusted all of their money to Madoff as well. Some may say, "Well no one ever DREAMED that Bernie Madoff was a scoundrel!" well true, however, you could entrust your money to a guy who has a heart of gold, that doesn't mean he can't mess up. Investing and asset management, like any business, is part art, part science, not hard science or engineering (and even engineers have been known to make mistakes occasionally).
Mark Ecko is another guy who seemed to be oblivious to this. Apparently he had a lot of his net worth tied up in his company, which is a fashion industry company. The problem was that his company was in an industry that is extremely prone to recessions, and thus when the global financial crisis hit and then the ensuing economic depression, his company crashed, and thus so did much of his net worth.
Now I have been going off on a tangent here as I am more referring to wealth management overall with all of this, but I think the same principle applies with building a company: don't have all the eggs in one basket. If your company is recession-prone, or in an industry that goes through cycles, then make sure that you take all of this into account. The business should be ready at all times for the chances of a recession (although I am sure that this is much easier said then done).
If your business is more recession-resistance, than that is great. And if your company consists of multiple sub-companies, then I would try to make quite a few of those sub-companies ones that tend to be recession-resistant. This way, when a recession inevitably occurs, those sub-companies can help prop up the faltering companies that are recession-prone. This will thus help protect the company and help protect your fortune/wealth as well.
For example, some people had all of their net worth (or almost all of it) tied up into one company, a company in an industry that was definitely prone to being devastated by a major recession. And thus the great majority of their hard-earned wealth disappeared due to their company getting decimated by the recession. If you have all of your net worth tied into one company, then you make damned sure that it is a company that is very strong and very recession-resistant. Otherwise, it is just too risky. Or, take a portion of your wealth and put it into other assets, so that you are not just tied to this one business you own.
Another example of bad thinking was all the people who entrusted their entire net worth to one guy. This is what many rich apparently did with Bernie Madoff. And even with entrusting it to multiple guys, you have to be careful, because some of those so-called investment managers simply entrusted all of their money to Madoff as well. Some may say, "Well no one ever DREAMED that Bernie Madoff was a scoundrel!" well true, however, you could entrust your money to a guy who has a heart of gold, that doesn't mean he can't mess up. Investing and asset management, like any business, is part art, part science, not hard science or engineering (and even engineers have been known to make mistakes occasionally).
Mark Ecko is another guy who seemed to be oblivious to this. Apparently he had a lot of his net worth tied up in his company, which is a fashion industry company. The problem was that his company was in an industry that is extremely prone to recessions, and thus when the global financial crisis hit and then the ensuing economic depression, his company crashed, and thus so did much of his net worth.
Now I have been going off on a tangent here as I am more referring to wealth management overall with all of this, but I think the same principle applies with building a company: don't have all the eggs in one basket. If your company is recession-prone, or in an industry that goes through cycles, then make sure that you take all of this into account. The business should be ready at all times for the chances of a recession (although I am sure that this is much easier said then done).
If your business is more recession-resistance, than that is great. And if your company consists of multiple sub-companies, then I would try to make quite a few of those sub-companies ones that tend to be recession-resistant. This way, when a recession inevitably occurs, those sub-companies can help prop up the faltering companies that are recession-prone. This will thus help protect the company and help protect your fortune/wealth as well.
Bureaucracy VS Anarchy Within a Business
So in my previous post, I mentioned how one strategy to build a large company is by building up a company that consists of many smaller companies. Another advantage that this can provide, at least in theory (although apparently in practice from my understanding as well), the best of both worlds for when it comes to companies. That basically you get the benefits of a big business (size, economies of scale, purchasing power, etc...) combined with the benefits of a small business (agility, ability to think and react quickly, etc...) at the same time.
The thing is, either one of these can have extremes that can be bad, and it seems like a challenge for any good business thus is how to find the right balance. As mentioned, in theory, a company consisting of a bunch of independent sub-companies that all operate on their own and then report to the holding company, can be able to provide the same types of fast innovation and agility that a small company will have while also providing the benefits of the economies of scale and purchasing power of a large organization. Examples can be companies such as the locks conglomerate Assa-Abloy, the luxury goods conglomerate LVMH, automation companies that consist of multiple smaller companies, and so forth.
The problem as I see it, however, is that one cannot just have anarchy. There has to be some level of central organization and direction from the top, or else you might end up with companies creating competing products, or companies doing the same kinds of research, but not sharing their research with one another, and so forth, which leads to money wasted within the overall organization (why have company B working on how to figure out the solution to a problem if company A already figured it out, but company B isn't aware of company A's research?).
I don't really have the answer to this type of problem, as I am no expert and I am more writing about it to just throw the idea out there, as I am sure plenty of other companies grapple with this on a daily basis and for all I know it has even been written about in the Harvard Business Review and so forth (I don't know). From what I have read from the management of such companies however, it seems to be that the management seek to give a good deal of autonomy and independence to their sub-companies, so that they can all act as independent smaller companies, while just guiding all of the sub-companies along in a general direction (the CEOs of the sub-companies must report to the leaders of the holding company).
The other extreme, i.e. too much top-down management and bureaucracy, is what slows a company down and kills innovation. I mean who wants to have to go through six layers of bureaucracy just to get an idea assessed, and it still may get shot down?
This problem can also manifest itself in individual companies, not just organizations that are holding companies for multiple sub-companies, but I mean individual companies themselves. There is that fine art of achieving that happy balance between innovation, entrepreneurship, and idea-generation and central direction and control, within individual companies as well. In fact, a large holding company consisting of many sub-companies may follow the way of some general central direction and lighthearted top-down management of the sub-companies while otherwise allowing them to all operate independently, so that they can innovate and prosper and be agile. These individual sub-companies, at the same time, will then have managements that must do this same process, create an environment for innovation and idea-generation while at the same time have some lighthearted top-down central direction.
How to Create a Creative Company Culture?
The above leads one to then ponder, how exactly does one foster a creative company culture? I would imagine that for one thing, try to keep bureaucracy light and efficient. As said, the company cannot function without professional management, but it cannot be too heavy. If you end up where someone has to go through layers of bureaucracy in order to get anything looked at, approved, or done, then your company has a problem. And also, try to hire creative-minded people and then listen to their ideas. I am sure there are other aspects as well, but I am forgetting them right now.
The thing is, either one of these can have extremes that can be bad, and it seems like a challenge for any good business thus is how to find the right balance. As mentioned, in theory, a company consisting of a bunch of independent sub-companies that all operate on their own and then report to the holding company, can be able to provide the same types of fast innovation and agility that a small company will have while also providing the benefits of the economies of scale and purchasing power of a large organization. Examples can be companies such as the locks conglomerate Assa-Abloy, the luxury goods conglomerate LVMH, automation companies that consist of multiple smaller companies, and so forth.
The problem as I see it, however, is that one cannot just have anarchy. There has to be some level of central organization and direction from the top, or else you might end up with companies creating competing products, or companies doing the same kinds of research, but not sharing their research with one another, and so forth, which leads to money wasted within the overall organization (why have company B working on how to figure out the solution to a problem if company A already figured it out, but company B isn't aware of company A's research?).
I don't really have the answer to this type of problem, as I am no expert and I am more writing about it to just throw the idea out there, as I am sure plenty of other companies grapple with this on a daily basis and for all I know it has even been written about in the Harvard Business Review and so forth (I don't know). From what I have read from the management of such companies however, it seems to be that the management seek to give a good deal of autonomy and independence to their sub-companies, so that they can all act as independent smaller companies, while just guiding all of the sub-companies along in a general direction (the CEOs of the sub-companies must report to the leaders of the holding company).
The other extreme, i.e. too much top-down management and bureaucracy, is what slows a company down and kills innovation. I mean who wants to have to go through six layers of bureaucracy just to get an idea assessed, and it still may get shot down?
This problem can also manifest itself in individual companies, not just organizations that are holding companies for multiple sub-companies, but I mean individual companies themselves. There is that fine art of achieving that happy balance between innovation, entrepreneurship, and idea-generation and central direction and control, within individual companies as well. In fact, a large holding company consisting of many sub-companies may follow the way of some general central direction and lighthearted top-down management of the sub-companies while otherwise allowing them to all operate independently, so that they can innovate and prosper and be agile. These individual sub-companies, at the same time, will then have managements that must do this same process, create an environment for innovation and idea-generation while at the same time have some lighthearted top-down central direction.
How to Create a Creative Company Culture?
The above leads one to then ponder, how exactly does one foster a creative company culture? I would imagine that for one thing, try to keep bureaucracy light and efficient. As said, the company cannot function without professional management, but it cannot be too heavy. If you end up where someone has to go through layers of bureaucracy in order to get anything looked at, approved, or done, then your company has a problem. And also, try to hire creative-minded people and then listen to their ideas. I am sure there are other aspects as well, but I am forgetting them right now.
One Way to Build A Billion-Dollar Business
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.
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.
Monday, October 4, 2010
On the subject of a "Great Idea"
So one recurring theme about becoming rich that many people seem to buy into is the idea that you need a great idea, that it is the thinking up that Great Idea that is what makes people rich. For example, the engineer who came up with the idea for the Super Soaker water gun, or the guys who came up with the Life Is Good phrase for apparel.
But this is a misconception. Yes, a great idea can certainly be a nice thing to have, and if you are selling this idea to an established company, this is fine, but this is not essential to building a company, which is the primary way I am talking of to become wealthy. For building a company, what counts most is the quality of the company itself. Sure you can start off with a great idea, but the most important thing is to build a great company that has a creative culture that can continue to produce all sorts of great new products.
Many people focus solely on the idea of creating a world-class product and forget that one also needs to create a world-class company as well. A world-class company will create world-class products and services.
And in creating a world-class company, one doesn't necessarilly need any revolutionary new idea. They just need to find a product or service and find a way to deliver or provide that product and service better than the existing competition. A perfect example was the creation of the company Waste Management. There is nothing exciting about garbage or waste. But building a world-class company for removing and properly handling waste in a professional manner resulted in a huge company.
Or plumbing. An entrepreneur might have the goal to build a huge professional plumbing company. Again, no "great ideas" involved here, just the concept of building a world-class company to deliver a service everybody needs.
But this is a misconception. Yes, a great idea can certainly be a nice thing to have, and if you are selling this idea to an established company, this is fine, but this is not essential to building a company, which is the primary way I am talking of to become wealthy. For building a company, what counts most is the quality of the company itself. Sure you can start off with a great idea, but the most important thing is to build a great company that has a creative culture that can continue to produce all sorts of great new products.
Many people focus solely on the idea of creating a world-class product and forget that one also needs to create a world-class company as well. A world-class company will create world-class products and services.
And in creating a world-class company, one doesn't necessarilly need any revolutionary new idea. They just need to find a product or service and find a way to deliver or provide that product and service better than the existing competition. A perfect example was the creation of the company Waste Management. There is nothing exciting about garbage or waste. But building a world-class company for removing and properly handling waste in a professional manner resulted in a huge company.
Or plumbing. An entrepreneur might have the goal to build a huge professional plumbing company. Again, no "great ideas" involved here, just the concept of building a world-class company to deliver a service everybody needs.
Becoming a Billionaire
So one of my primary goals is to become a billionaire. No, not a millionaire, a billionaire. In order to do this, I intend to build a huge company and invest and build real-estate. I love entrepreneurship (or at least the subject of it---I still have to actually engage in it) and my dream is to build enormous companies.
Why am I so bent on becoming a billionaire? Well, a few reasons. For one thing, I love luxury. To expand on that more I love architecture, gardens, furniture, and interior design. As a result, I have some dream homes that I plan to own, and the only way I will be able to own these dream homes is to be very wealthy. I also love fine automobiles, everything from Lamborghinis to Bentleys. Again, the only way to own these is to be wealthy. And I love yachts, private jets, and fabulous vacations. Again, this stuff requires wealth.
The other reasons are that there are a lot of things that I want to do that will require a lot of wealth. For example, I want to work at underwater exploration, at underwater flight as Graham Hawkes has been. That will require some money. I want to be able to study whatever I want and to fund my own research. I want to contribute a lot to philanthropy. I want to do a lot of work in the arts as an artist, but to do this requires money as one can't make much income from the arts.
I also want the ability to start any companies I think up. This, again, requires money. I want to develop real-estate and invest and so forth as well. Yes, one doesn't necessarilly need a billion-dollar net worth for all of this stuff, however for the homes I want, I think the cost of the home would be around $40 million to $50 million, which to comfortably afford, I'd prefer a $1 billion net worth at least.
Basically I want the ability to build and create things as I please, whether this be through scientific and engineering research or the arts. To get this wealth, I will have to succeed in building a huge company.
Why am I so bent on becoming a billionaire? Well, a few reasons. For one thing, I love luxury. To expand on that more I love architecture, gardens, furniture, and interior design. As a result, I have some dream homes that I plan to own, and the only way I will be able to own these dream homes is to be very wealthy. I also love fine automobiles, everything from Lamborghinis to Bentleys. Again, the only way to own these is to be wealthy. And I love yachts, private jets, and fabulous vacations. Again, this stuff requires wealth.
The other reasons are that there are a lot of things that I want to do that will require a lot of wealth. For example, I want to work at underwater exploration, at underwater flight as Graham Hawkes has been. That will require some money. I want to be able to study whatever I want and to fund my own research. I want to contribute a lot to philanthropy. I want to do a lot of work in the arts as an artist, but to do this requires money as one can't make much income from the arts.
I also want the ability to start any companies I think up. This, again, requires money. I want to develop real-estate and invest and so forth as well. Yes, one doesn't necessarilly need a billion-dollar net worth for all of this stuff, however for the homes I want, I think the cost of the home would be around $40 million to $50 million, which to comfortably afford, I'd prefer a $1 billion net worth at least.
Basically I want the ability to build and create things as I please, whether this be through scientific and engineering research or the arts. To get this wealth, I will have to succeed in building a huge company.
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