The journey from flipping websites for a few dollars to orchestrating billion-dollar deals is nothing short of extraordinary. This blog explores the inspiring story of Thomas Smale, who transformed his side hustle into a thriving enterprise, making waves in the mergers and acquisitions (M&A) industry. Here, we will delve into his strategies, experiences, and advice for aspiring entrepreneurs looking to buy and sell businesses.
Getting Started in M&A
Thomas’s foray into the world of M&A began during his college years. Like many students, he sought ways to earn extra cash. His initial foray involved buying and selling domain names, which eventually led him to discover the lucrative potential of established websites. This transition was pivotal, marking the beginning of his journey in the business world.
His first deal involved purchasing a website for $100, which he managed to turn into a profit by selling it for $500. This early experience not only provided him with initial capital but also instilled a sense of confidence and understanding of the buying and selling process. It was a small step that paved the way for much larger deals in the future.
From Hobby to Full-Time Business
After successfully flipping websites, Thomas recognized the need to scale his operations. In 2010, he founded FE International, a firm dedicated to M&A. His journey from a college student to a business owner was driven by necessity and an unwavering desire to avoid traditional employment.
Initially, he focused on selling courses and books about buying and selling websites. However, as demand grew, clients began asking him to help sell their businesses. This request led him to delve deeper into M&A, a field he had little formal training in but was eager to explore.
The Importance of Hiring the Right Team
As Thomas scaled his business, he quickly learned that he couldn’t do everything alone. Recognizing his limitations, he hired skilled professionals, particularly in technical roles, to complement his strengths in sales. This strategic decision allowed him to focus on what he did best while leveraging the expertise of others.
His partnership with Ismail, who had experience in a large investment bank, proved invaluable. Ismail brought a wealth of knowledge regarding high-value transactions, which helped Thomas apply established practices to smaller deals, propelling their business forward.
Leveraging the Pareto Principle
One of the key lessons Thomas learned early on was the importance of focusing on what generates the most profit. This realization aligned with the Pareto Principle, which suggests that 80% of results come from 20% of efforts. By identifying and prioritizing the most profitable aspects of his business, Thomas was able to streamline operations and maximize earnings.
Finding Good Businesses
For those looking to buy their first business, Thomas emphasizes the importance of defining a clear budget and understanding the type of business model that appeals to them. Whether interested in blogs, SaaS businesses, or e-commerce, having a clear vision is essential. Once this is established, reaching out to potential sellers can be done through personalized communication, avoiding generic messages that fail to capture attention.
Additionally, Thomas believes in the significance of building relationships. Engaging in meaningful conversations can lead to opportunities that may not have been initially apparent. A human touch in outreach can set potential buyers apart from others in the market.
Characteristics of a Good Business
When evaluating potential acquisitions, Thomas looks for specific traits that indicate a business’s sustainability and growth potential. Key characteristics include:
- Evergreen Appeal: The business should offer products or services that remain relevant over time.
- Recurring Revenue: Businesses with repeat customers or subscription models tend to be more stable and profitable.
- Growth Potential: A business that is expanding is typically more attractive to buyers, as it suggests future profitability.
Success Stories and Milestones
Thomas’s career took a significant turn when he successfully closed his first eight-figure deal. Selling a business for over $10 million marked a pivotal moment, elevating his firm to new heights and attracting higher-profile clients. This success demonstrated the potential for growth within the M&A sector, as well as the compounding effect of establishing a reputation for handling larger transactions.
Understanding Valuation and Pricing
Valuing a business accurately is crucial in the M&A landscape. Thomas explains that most small businesses are valued based on profit rather than revenue. The typical range for profit multiples can vary significantly, but understanding this principle is essential for buyers and sellers alike. Generally, businesses with recurring revenue and a solid growth trajectory command higher multiples, making them more attractive investments.
The Advantages of Buying a Business
While starting a business from scratch can be appealing, Thomas argues that buying an existing business often presents more advantages. Existing businesses come with established customer bases, proven products, and operational frameworks. This foundation allows new owners to focus on growth and improvement rather than starting from zero.
However, the initial challenge is securing the necessary capital. Thomas advises aspiring buyers to explore options for funding, whether through personal savings, loans, or partnerships. Having even a small amount of capital can significantly increase opportunities for acquiring a business.
Mastering Negotiation Skills
Negotiation plays a pivotal role in the buying and selling process. Thomas emphasizes the importance of knowing your objectives before entering negotiations. Whether aiming for the best price, a quick transition, or ensuring the business’s legacy continues, understanding priorities is crucial.
Successful negotiation often involves compromise. By identifying key points of contention and being flexible on less critical issues, both buyers and sellers can find common ground. Thomas encourages aspiring entrepreneurs to hone their negotiation skills, as they are valuable not just in business but in everyday life.
Getting Started with No Capital
For those starting with no capital, Thomas offers practical advice. He suggests looking for items to flip that require minimal investment. Additionally, he stresses the importance of learning the process of buying and selling, even if it starts with small transactions. Building a track record, no matter how modest, can open doors for future opportunities and potential investors.
Ultimately, the journey from flipping websites to managing billion-dollar deals is a testament to the power of perseverance, strategic thinking, and continuous learning. With the right mindset and tools, anyone can embark on a similar path, transforming their financial future through the art of buying and selling businesses.
