A quick sponsorship before we dive in:
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Something people don’t realize about business is that you can operate with such a serious competitive advantage it is totally unfair.
You can print money out of thin air and do it with very little risk.
An example:
I know a guy who bought, owned and operated body shops. Body shops are basically car mechanics that work on cars that have been in accidents and need new paint, panels, glass etc.
He sold the entire portfolio for over $50 million (with zero debt) a few years ago.
Here is what he did…
He started with a single bodyshop. He operated it well and most of his work was sent to him through insurance companies. He hired a general manager to oversee the shop and eventually recruit employees, etc. He wasn’t very involved in the business.
The flow of customers was simple. A car would hit a deer or get in a fender bender and the owner called their insurance company. State Farm, Geico, etc.
The insurance company would then recommend a body shop nearby on their approved list, the work would get done and the insurance company would pay the bill.
My friend realized quickly that the insurance companies controlled the entire industry. They sent business to the best shops and those shops thrived. The poorly managed shops couldn’t meet Geico’s standards and they would lose contracts and not get much work.
What my friend did was genius:
He worked his way up the chain at Geico and asked the regional reps where they were having problems working with reliable body shops.
Geico didn’t care who did the work, they just needed it done by a reliable and trustworthy operator. So the rep would straight up tell him what towns and regions they couldn’t find a good body shop to work with.
“Yeah Tuscaloosa Alabama market has been all kinds of problems for us. We can’t find any body shops worth a crap who aren’t overloaded with work there.”
So my buddy went to Tuscaloosa Alabama and bought a struggling body shop but with a good footprint and building layout. He’d often buy them for 1x earnings or a few hundred thousand dollars.
He’d also buy the real estate himself under a separate entity for cheap because the old tenant was unreliable and wasn’t paying much rent.
Then he’d do two things:
- He’d whip the workforce into shape. He’d arrive with his team and clean house or replace the management. He eventually had a team of folks traveling around and doing this!
- He’d call the regional Geico rep and say I’M OPEN FOR BUSINESS AND YOU CAN COUNT ON ME.
Then something amazing would happen.
Geico would flood his bodyshop with business. The guy he had spoken to wasn’t lying. They had a hole in their service and Geico had a problem that was now solved because a guy they trust is now in the market.
And 3 months after he bought a bodyshop the revenue would be 3x what the previous owner had experienced, profit had 5x’d and the business was BOOMING.
And he’d do it again and again and again.
He built up to 35 body shops and had a $50 million + exit (and kept the real estate) recently.
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PSA:
If you love this newsletter, you’ll love Codie Sanchez’s newsletter too. Click right here for automatic subscription and start learning more about small business.
She tells stories just like this.
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Side note:
He kept the real estate and signed a master lease with each body shop before he sold the portfolio. The real estate is generating massive profit each month and is worth MORE THAN HIS PORTFOLIO of body shops.
Unbelievable right?
Business is a beautiful thing when you operate from a place of leverage. When you have a competitive advantage.
The lessons:
Personal relationships matter. That insurance rep trusted my friend and he had a problem. He voiced the problem and my friend solved it.
Being in the game matters. When you get in the game and you’re looking out for opportunities, they appear.
My friend was an exceptional delegator. He wasn’t head down in the weeds working on cars at his shop. He hired a manager so he could focus on growth.
Then he hired a team to actually travel and do the turnarounds and regional management.
He used a tough business to leverage into a good business. Body shops are hard. There was way more stress in real life than there was in this story. But he bought a lot of real estate and used the tax advantages from that real estate to shield his income.
And he still owns the real estate today and just collects a few million a year of rent from the person who bought his shops and runs them.
The main point:
Find a point of high leverage. Find a good business with a competitive advantage so you can operate on “easy” mode. That is when it gets fun and you can make TONS of money.
Onward and upward,
Nick