Hey GirdleyWorld!
First, thanks to everyone who took the time to do the audience survey. We’ve got a great bunch of entrepreneurs, investors, owners, and holdco folks tuning in on the regular.
I’m glad you’re part of it!
In today’s issue, we’re talking the first steps of starting your HoldCo (or any major life work):
- Step 1: Where do you want to be?
- Step 2: Making a map to get there
- Plus, we’ve got a couple of great reader questions!
(P.S. If you missed the reader survey, I’d still love to hear from you! It’s right here.)
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Where do you want to be?
I’ve heard from lots of you that you want to build your own holdco. So today I want to walk you through the very first steps you should take.
That first step is your 10-year vision.
Why 10 years?
For starters, that’s how many fingers I have. But mainly, it’s because 10 years is a long time.
By nature, a HoldCo is about owning things that will be durable in the long term. Looking 10 years down the road forces you to play the long game, and reflects the mindset and attitude you’ll need to cultivate.
HoldCos are the opposite of venture capital high-growth Silicon Valley startups. Berkshire Hathaway wasn’t built overnight.
Personally, I tend to stick to stuff for a very long time, which makes HoldCos a good fit for me.
It’s also good to keep in mind that you will be a different person in 10 years than you are now. So while you need to be determined to stick the course, you also need to be open to growing and changing as a person.
What to do
There are a bunch of different planning methodologies for setting a 10-year vision. The top thing that I take from all of them is keeping it simple.
There are two things that I think you have to nail down to make long term success possible:
- Your Northstar
- Your Why
Let’s look at those one at a time.
Your Northstar
Your Northstar is a single number that reflects where you want to be in 10 years.
My favorite is to pick a revenue or a profit number, because as a business your goal is to put money in your pocket.
So it could be: 10 years from now, I’m going to have a HoldCo worth $1B. (Or $10B.) [NOT my real number BTW!]
This gives you a clean, clear number that you can plan backwards from.
Your Why
Sticking to anything meaningful for 10 years, you are guaranteed to have some hard times. What’s more, 10 years from now you will be a different person than you are today. That’s why you need a Why.
A Northstar number alone isn’t personal. If you’re going to dedicate a significant portion of your life to something, it must be meaningful to you as a person. What are you passionate about?
In the big picture: what impact do you want to make on the world?
In the little picture: what do you want to do with your time, in the day-to-day?
If you’re able to build a HoldCo that matches your why, you’ll have a reason to power through the challenges you are guaranteed to face. Your personal objectives and your business objectives need to be tied up together for it to be meaningful.
So what are your values? What do you want your daily life to look like? And what kind of person do you want to become?
My “why” is to create as many jobs and opportunities as possible for people, and to give back to my community in San Antonio.
I want to share the knowledge I’ve built up over the last decades to make people smarter.
And I want my daily life to be teaching people, having enlightening conversations, solving interesting problems, spending time with family, and running down great opportunities when they appear.
I also want to make a bunch of money.
My HoldCo serves my why, so I love what I do every day. So what’s your why?
Quick ad break, then we’ll start drawing the map from where you are now to where you want to be.
Making a map to get there
Figuring out your Northstar and your Why gives you your big-picture goals.
The next thing to do is take stock of where you are today. My favorite tool for doing that is a SWOT Analysis.
If you’re not familiar, SWOT stands for Strengths, Weaknesses, Opportunities, Threats.
It’s a great way to map out the resources you have and take stock of the known challenges you’ll face.
You can map it out as a 2x2 matrix, like this:
Keeping your big picture plan in mind, fill out each quadrant. Here are some questions to get you started:
Strengths
- What do I do well?
- What have my customers or partners told me they like about me?
- In what areas do I outpace my competitors?
- What’s unique about my business, products, or services?
- What assets do I own? (e.g. IP, tech, capital)
Weaknesses
- What can I improve?
- What are my customers or partners dissatisfied with?
- Where do I fall behind my competitors?
- Where am I lacking in knowledge or resources?
Opportunities
- What emerging trends can I take advantage of?
- Which of my strengths might be valuable to potential partners?
- What adjacent markets might I tap into?
- Are there geographic locations with less competition?
Threats
- What is my competition doing?
- How could my weaknesses leave me vulnerable?
- What market trends am I unprepared for?
- What economic or political issues could impact my business?
Once you’ve filled out your SWOT analysis, you’ll probably see a million “to do” items. Before you dive into anything, take a breather to let this settle. Come back in a day with fresh eyes and read everything you wrote.
Then it’s time to start strategizing. (But that’s a whole other topic!)
If you found this helpful, you’ll love my Complete HoldCo Course.
I break down every step of how to start, operate, grow, and exit your own HoldCo. You get the whole video course, transcripts of everything, and access to our exclusive HoldCo Slack community where I and other experts answer all your questions, and you can tap a whole network of peers at every experience level.
Come on in, the water’s lucrative!
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Reader Questions
From a reader looking for efficiencies in their holdco:
When and how should you integrate operations when you’re adding businesses? Which departments share backend resources most effectively?
It really depends on the types of businesses that you’re adding to your holdco. If the businesses are uniform, it’s easy to see how centralization of departments adds efficiency. The more different the businesses, centralization is more difficult to justify.
Theoretically, it should be simple to centralize things like accounting, HR, or even sales in a holdco. But, in practice, if the businesses are different that proves to be inefficient.
I explain it this way: Imagine you add a business and have a CEO in charge of that business. She is responsible for P&L (profit and loss).
But then you centralize accounting to be more efficient, effectively taking away her control of it. So when it comes to collections or staffing, the CEO doesn’t have what she needs, or has to jump through hoops to get it. Inevitably, the centralized accounting won’t be optimized for her needs.
Ultimately, you want your companies to remain as entrepreneurial as possible. The only way to do that is to give authority and responsibility to the CEO for each business. My rule of thumb is to centralize as little as possible and only when it’s a 10x no-brainer situation. Otherwise, don’t do it.
From a reader who’s fighting with deal FOMO:
I’m worried I’m going to miss out on the best deal! I’ve sourced (and declined) about 38 companies in the last 3 mos and I don’t want to rush into a bad purchase but I also don’t want to pass up an opportunity. Any advice?
My favorite math on searching for something is called the “Optimal Stopping Problem” (also called the Secretary Problem).
Let’s say you’re a boss and you’re hiring a secretary. How many candidates should you consider? What algorithm is optimal to get the best candidate?
It turns out there is math to this. Here’s the key, from the Wikipedia page for the Secretary Problem:
“The optimal stopping rule prescribes always rejecting the first [x number] applicants that are interviewed and then stopping at the first applicant who is better than every applicant interviewed so far (or continuing to the last applicant if this never occurs).”
The good news is that reviewing 38 deals is actually supported by the math. You should be OK pulling the trigger the next time you see a deal better than all the ones you’ve seen so far.
Here’s a secret: I actually advise people to look at 100+ deals before they pursue one. Why? I know if I tell them 100, they’ll probably look at about ~35 before pulling the trigger. So, you’re doing just fine to go ahead. Or, at least the math says so!
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3 things that caught my eye this week
Appetizer: Do you want to directly change lives? My coding bootcamp Codeup is hiring a VP / Director of Placement — you get jobs for our graduates (something we’re very proud of doing). Check out the job listing here. Come be my neighbor right here in Texas!
Main: Is the market 60% overvalued? Spoiler alert: there’s more to those numbers than it seems. Brian Feroldi writes a great breakdown of how to get past alarming headlines and look at the deeper context.
Dessert: I had a fun conversation with Peter Lohmann on his podcast Owner Occupied… and how the Civilization games shaped how I work today (plus lots of business stuff). Give it a listen on Apple or Spotify!
My question for you this week: What part of your business confuses you the most?
That’s it for today! Have an amazing week.
Michael
