Build A Stronger Business Through Acquisitions

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The Roll Up strategy, if understood and properly executed, can be among the most profitable for entrepreneurs or experienced business leaders due to the numerous benefits it provides.

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The consolidation of an industry within or between geographic markets, referred to as a “Roll Up,” is a strategy that has the potential to return a great amount of value to company stakeholders. Being that most businesses in the United States are small, independent operations, there is a lot of opportunity for those who are willing to purchase these individual businesses and consolidate them into a single company.

While I will not argue that effectively operating any business enterprise at scale is “easy,” I will say that the concept of the Roll Up strategy is very straightforward. The basic idea is that you begin with a single enterprise and begin to purchase independent firms in the same market that will then be integrated into the original firm. The expanded firm then operates with each “piece” contributing to the larger whole (ie., they become interdependent).

To paint the picture of the Roll Up strategy, I will use the example of Private Schmuckatelli, a barber in the United States Army. After four years of serving his country and perfecting the art of the high and tight, Private Schmuckatelli feels that he is ready to embark on his own business adventures. He begins by opening up his own barber shop in his hometown of Anywhere, USA. He calls it Hair Klutz.

Private Schmuckatelli has a little competition from other independent barber shops, but nothing that cuts too far into his own ability to make money. Each of his competitors are also doing well for themselves. Private Schmuckatelli, however, begins to enjoy the business side of the activity more than cutting hair after he realizes that he is really good at it.

After some time has passed, Private Schmuckatelli has saved up enough money to approach one of his fellow barbers with an offer to purchase their barber shop. They agree on terms and now Private Schmuckatelli owns two barber shops, both under the Hair Klutz brand and business structure. Over the years, Private Schmuckatelli replicates this as his business income grows and ends up owning all of the once-independent barber shops in his home town.

With a dozen or so Hair Klutz locations, Private Schmuckatelli is able to leverage their combined resources much more efficiently for advertising and can negotiate better deals from scissor suppliers. This increases his overall margins without raising his prices. The strengthened firm not only benefits Private Schmuckatelli, but all of the stakeholders in the new, consolidated company.

Private Schmuckatelli can now lower prices, offer additional services to his customers and benefits for his employees, and focus on the big picture of the firm rather than the day-to-day site operations which will now be run by store managers.

Among the myriad of benefits of the Roll Up strategy, one may stand out (to me) above the rest. As we know, most new businesses fail to take off for a variety of reasons. Many times, entrepreneurs simply don’t do enough market research to understand their place and how to position themselves. Acquisitions of existing, profitable businesses circumvent this problem and allow us to hit the ground running with businesses that are already established with their own existing customer base.

The bottom line is that it is much easier to create a large, successful enterprise via acquisitions rather than build one up from scratch. This is, in a way, an act of risk hedging in that you allow someone else to take all of the startup risks, organize the business, build it up, and then simply purchase it from them at a price that works well for both of you.