We own autoglass repair and replacement service locations, skydiving centers and tool and die shops in the Midwest. How did we chose these lines of business? How do they compliment each other?
I like to say that we did not choose them so much as they chose us.
Upon launch, we committed to do several small investments without concern for sector. Our concern was geography and value. We wanted to understand the basic fundamentals of the business and see a path for the company over decades. Our goal was never to buy and flip, but buy and grow. We entered several more business lines than just these three. It was only after we got into too many business lines that we began to restrict ourselves to existing lines. As time went along we continued to focus still further, disposing of several lines. By this manner we could put more units of like-kind through the same management hour. This year we got out of our roll-off dumpster companies. This allows us to focus still further. We free up capital –cash and time– to allocate to geographic expansion of fewer lines.
Why these three specifically? Which is your favorite?
I could go on and on about each line at this point, however it might help our competitors more than I’d like. Suffice it to say, we simply like them, and how they fit together. Today, we can review management capacity and the team’s rate of change and dial in plans to maintain peak performance. Most people do not think about this, but at our highest level we have the option to sit on cash, buy marketable securities, add a location to an existing line, or buy more tangible assets that we typically lease. How do we decide? First off, our control purchases have to beat our marketable security practice. And, our marketable security practice has produced an average over 20% return –and it’s way easier to manage. However, our partners find this boring and new partners don’t join us for this line. What they want is operating companies, as do we. Why? We can usually find fair purchase prices and institute some improvements over a period of a few years that make the company more valuable. They are not passive however and we are limited by management time. Why rush into another stressful control purchase when our leadership team is not ready? Of these three lines, only one line gets expensive from time to time.
By narrowing our focus we can also further specialize. For example, we have technical training and customer support training. We have shop and van layout standards. We have vertical market support groups within our network. We have the benefit of testing ideas at one location and then spreading it quickly across all locations. This works within an industry but also across industries. Furthermore, we have heavier capital expenditure options we can take when warranted. We can own buildings or aircraft when it makes sense.
Which is my favorite?
That’s like asking which child is your favorite! It changes from day to day. Most days, my favorite is our marketable security business line. It’s a one-man band and no one is complaining. At other moments the engagement of people that are transforming other people’s lives is heart-warming and profitable.