Hey folks!
Today’s topic: the 15 mistakes multiple business owners make
Holding companies are popular these days. But it’s easy to forget they’re relatively new, so there isn’t much literature about them.
But a lot of you either want to own multiple businesses, or do already. So I wanted to go over 15 of the most common mistakes I’ve seen people make — and I’ve made many of these myself.
1. Not knowing what you’re getting into
A lot of people starting HoldCos buy into the Warren Buffett myth that he just eats Mcdonald's and reads all day. Don’t make the same mistake.
Running a holdco is not a get-rich-quick scheme. It’s not a get-rich-easily scheme either.
A lot of people aspire to HoldCos thinking it will be less work than running a single business. It’s usually the opposite.
2. Going in alone
When I talk to aspiring HoldCo owners and operators, often as not they have no team around them. They don't have a good lawyer. They don’t have a good set of mentors. They're not in a CEO group. They’re trying to do it all by themselves.
The reality is that a peer group, lawyers, accountants, and advisors—whether paid or unpaid—are all part of helping you be successful.
Do you have your people? For my full checklist, check out my post on building your entrepreneurial all-star team.
3. Getting robbed
A big part of that team’s job is making sure you don’t get screwed.
Because it can happen. Your employees, your customers, your partners… they can all steal from you. At one company, a person stole hundreds of thousands of dollars. I’ve been robbed by people that have been with my companies for years.
It sucks, but it happens.
So find a trustworthy team. Then, if you’re an SMB CEO, consider reviewing the books weekly. And get audited!
4. Not keeping a flexible mindset
Few people start as holdco owners. Most people start with a single business, then start or acquire new ones.
But running multiple businesses requires a very different mindset than running just one. A HoldCo CEO spends a lot more time on allocation (mostly capital allocation) and doing deals than they spend down in the trenches of any of their companies.
You have to be ready to give up most of your control, and trust the people you have in order to be successful.
If you’re not ready to trust or delegate running the business, then you probably shouldn't be running a HoldCo.
5. Growing too quickly
This is a very common mistake. Especially when you're younger, you want everything to happen right now.
You need to be methodical about building the right infrastructure as you grow, or you can quickly get overleveraged.
Remember: going from one company to two, your HoldCo has instantly grown by 100%. Two to four is another 100%.
These are big leaps. And each time you grow, you’ll see cracks in your operational ability and financial ability. If you don’t take the time to fix your foundation, you can get in big trouble before you know it.
6. Debt is a tool, but dangerous
Debt is a very useful way to grow quickly. But it also presents one of the biggest risks.
Depending on the debt structure, you might lose your business or even your home.
It all comes down to your risk tolerance. Some people grow HoldCos with no debt whatsoever. It’s safer, but the tradeoff is slower growth. Others take on debt aggressively and expand quickly.
The thing is, almost every time a company gets in trouble it’s because of debt — the cash flow just can’t keep up.
Keep in mind that the price of debt isn’t fixed — as the economy ebbs and flows, debt gets cheaper or more expensive. And loading up too much on cheap debt can get you in trouble when things change.
7. Giving up too much equity early
Equity is an easy alternative to debt.
Imagine you need a cash infusion to get things off the ground, and sell 80% of the equity for a few million dollars.
But now you’re working the rest of your life to own just 20% of the company. And you don’t have those percentage points to sell anytime in the future.
8. Noncontributing / nonstrategic partners
Felix Dennis (author of How to Get Rich) says there’s only one way to get rich: it’s not equity, it’s not earnings… it’s ownership.
Be careful who you work with. Because it’s very easy for partnerships to drift, and one day you realize you’re bringing 90% of the value for 50% of the agreement.
And once you have a partner in your company, it costs a premium to get them out again. Never take on partners or investors without doing your due diligence.
(I’ve written previously about how to make a beautiful business partnership.)
9. Not setting clear goals / vision
I made this mistake for a long time.
Some people say, well, just do the right things every day and good things will magically happen.
Unfortunately, it doesn’t work that way. If your goal is to climb Mount Everest, you don’t just put on a jacket and start walking. You plan.
Run a personal goal-setting exercise (like I talked about last week) thinking about the vision you want for the HoldCo and your own life. I didn't do it for a decade, and I probably wasted a decade of my life not doing it.
10. Doing something when nothing is a fine option
Great HoldCo operators do great things.
But when the right opportunities aren’t there for you, sometimes the best move is to wait. Just build up cash and look for the next good deal. Because getting into a bad deal can be 10x worse than no deal at all.
That doesn’t mean you should default to nothing. But sometimes you need to wait — maybe the market needs to go up, or down, or stabilize. Maybe you need to wait for a thesis to prove or disprove itself. Maybe you need to sort things out internally.
Because if you’re running around chasing deals and following prices all the way up… you’re going to be in trouble when prices go back down.
11. Removing optionality
Don’t back yourself into a corner where you can’t do more stuff. You want the resources and flexibility to strike when a great deal crosses your path.
I’ve had plenty of times when I’m running my HoldCo schedule at 110%, and I have no room to add anything else. And that's a mistake.
Because if a really great deal comes down and I wanted to jump on it, I don't have the bandwidth to do it.
12. Keeping too much control
When you go from CEO of one company to CEO of a holdco, suddenly a bunch of stuff just isn’t your business any more. You're now basically a board member for the business. Sticking your nose into every detail is just going to bog things down.
You shouldn't be joining in on the staff meetings for your CEO. You shouldn't be out talking to the customers. That's the company’s job. They have a leader for that.
You should set up a cadence of checking in with them, and find the right balance for each business. You need to know what’s going on, but not micromanage. It’s hard!
13. Not holding people accountable
This is the opposite of too much control. Because being too nice and hands off is also a mistake.
Once you know your values, and your standard for excellence, you need to be vigilant in holding people up to that.
I realize most people who get into entrepreneurship tend to not have the problem of being too nice. I'm often too nice. But sometimes I need to be Mean Girdley, because circumstances demand it.
14. Not setting up systems and playbooks
If you’re going to own 10 businesses, don’t you want them all doing the basics the same way?
There are tons of systems out there that experts have spent years coming up with. So pick one, implement it everywhere, and stick to it. Don’t try to invent your own crap.
Also — make sure your systems are easily repeatable and have clear ownership at each company.
15. Beware of Software/Custom Software/CRMs/ERPs
Frankly, software is a minefield. Never bet that your HoldCo is going to magically get more productive because you deploy some software.
It’s never that easy. It’s going to cost double what you think, and take three times longer to implement than you’re budgeting for.
And sure, software can look amazing in the demos. But real businesses are full of exceptions, weird use cases, and human beings who don’t remember to click the right buttons.
That’s all for today! This was a long-ish one. What did you think?
Have a great week!
Michael
