Wealth creation has long been tied to owning and operating businesses, but for many entrepreneurs, the path to financial independence has come with a catch: overextension.
Buying, managing, and growing businesses is time-intensive and resource-draining, especially when trying to scale through multiple acquisitions, but I’ve figured out a way to capitalize on the returns of operating and the passive growth of investments.
Today I’m going to explain the power of fractional acquisitions, and how I’ve evolved from the “buy then build” guy to now talking about unlocking wealth on another level.
But first let me share a little bit about my journey to illustrate my perspective.
Back in 2000, I graduated from the University of Kansas with a double degree in Religious Studies and English Literature. Naturally, I did what any English and Religious Studies major would do – I went to work for one of the largest financial institutions in the world: Charles Schwab.
At Schwab, I earned my Series 7 license and immersed myself in learning about the public markets. My role was to help retail investors with asset allocation.
During that time, I read a book by Schwab’s founder, The Guide to Financial Independence, and it introduced me to a concept that stuck with me: When you save a dollar, that’s the last dollar you’re ever going to spend.
Your savings are tied to where you are in time, and when those two points align, you hit your magical financial independence moment.
At that point, I was sold on the idea of long-term savings and aggressive investing, and I proceeded to put all my savings into the NASDAQ. However, the following decade was brutal – in fact, it was even coined the “Lost Decade.” For ten years, the S&P 500 and NASDAQ were both in the negative.
Source: PURE Financial Advisors
I was saving aggressively, living on just $19,000 a year, and putting 20% of my income into the markets.
Then the bottom fell out.
I was laid off from Schwab along with 6,000 others.
It was at this point the realization hit hard: the traditional long-term retirement model wasn’t working for me.
I knew I needed to get into entrepreneurship if I wanted to make real money. The problem is that startups fail – 90% of the time, and often more.
Startups, I learned the hard way, are punishment for people who don’t understand statistics. I launched my own startup around this time and it failed.
So I shifted my focus to acquisition entrepreneurship. Instead of starting businesses, I began buying them.
I got my MBA, took on a big personally guaranteed loan, and completed my first acquisition.
By leveraging small business bank loans, I merged entrepreneurship with private equity principles in a way that worked for me. Then, in 2018, I wrote Buy Then Build, which helped spark the acquisition entrepreneurship movement we see today.
If One Business is Good, More Must be Better?
At this point, many entrepreneurs are asking, “Why stop at one business?” They want to buy 17 companies and be the Warren Buffett of small business acquisitions.
But here’s the reality: stacking acquisitions can create a high-leverage, high-risk situation.
More isn’t always better.
When you stack acquisitions, you’re adding complexity: multiple teams, managers, customers, and personally guaranteed loans. You risk cash flow problems, workforce turnover, and external market factors like rising interest rates. It’s a recipe for being over-leveraged.
I realized that instead of stacking businesses, I needed to scale differently. I started looking for opportunities to buy slices of businesses instead of the whole pie.
With the same amount of money I would use for a down payment on an acquisition, I could invest in fractional ownership, partnering with other entrepreneurs.
Fractional acquisitions allow me to balance active returns from owning businesses with passive diversification.
It’s a strategy that complements traditional acquisitions, provides scalable wealth-building opportunities, and avoids the operational headaches of managing multiple businesses.
Here’s the bottom line: fractional acquisitions are a complementary strategy to buying and building businesses and one that allows you to grow without overextending.
It’s not about owning more businesses – it’s about owning strategically.
Do the Ultra Wealthy Diversify?
Michael Kitces, a financial advisor at Buckingham Asset Management in St. Louis, posed a thought-provoking question on his blog: How do billionaires actually become billionaires?
While financial advisors excel at helping clients grow wealth, most clients never reach billionaire status. So, what’s their secret?
Kitces found that diversification, a cornerstone of traditional financial planning, doesn’t play a significant role early on.
Instead, billionaires stay highly concentrated in their investments during the wealth-building phase.
This focused approach allows them to maximize their efforts, resources, and returns.
Source: Michael Kitces | The Wealth-Limiting Risks Of Diversifying Too Soon
Take Bill Gates as an example. He concentrated almost entirely on Microsoft, even after it went public, and only diversified later, once his wealth was already substantial. This approach stands in stark contrast to the typical advice of spreading investments to reduce risk.
For most, diversifying actively across multiple ventures creates a “risk stack” by adding complexity – teams, industries, and customers to manage. It’s like trying to tame an octopus. Additionally, it’s often too slow for meaningful wealth building.
So, how can we balance the benefits of concentration with the eventual need to diversify?
The key is leveraging high-yield opportunities in private markets, where inefficiencies create outsized gains.
Where to Find These Opportunities
The best alternative investments fall into three categories:
- Private Real Estate: Reliable cash flow and tax benefits.
- Private Equity: High appreciation potential – the “Kurt Cobain” of investing, bold and transformative.
- Private Credit: Steady, collateralized income streams, especially as banks pull back on lending.
These private market options allow you to harness the wealth-building power of concentration while enjoying the outsized returns inaccessible in public markets. By capitalizing on inefficiencies, you can grow wealth significantly faster.
What Do Billionaires Invest In?
Tiger 21, an exclusive network for individuals with at least $20 million in liquid assets and a net worth of $30 million or more, publishes data on how their members allocate their wealth.
Source: TIGER 21 Asset Allocation Report Q1 2024
55% of their wealth goes to private real estate and private equity, with 29% going to private equity alone – the largest single portion of their portfolios.
Compare that to the average investor, who is typically 100% invested in lower-yield public markets or just beginning to explore business ownership.
Why do these individuals favor private markets? It’s simple: market inefficiencies. Private equity and venture capital exploit these inefficiencies, offering opportunities for outsized returns that public markets can’t match.
The secret to wealth building isn’t just diversification or concentration – it’s knowing when and how to use both to maximize returns and minimize risk. And private markets are where that balance is most effectively struck.
JOBS Act and the Evolution of Wealth Creation
The key takeaway here is that private equity has outperformed public markets for 25 straight years. In fact, over the last quarter-century, the public markets only outperformed private equity in one single year, while private equity has consistently outperformed in all 25 years.
So how do we get access to these deals?
Before 2013, private equity and venture capital were largely exclusive to the ultra-wealthy – it was a closed game.
Then the Jumpstart Our Business Startups (JOBS) Act came along and changed everything. This legislation opened up opportunities for more people to participate in private investments, democratizing access to what was once reserved for the elite.
The fact that we’re here today, discussing private deals openly and exploring opportunities together, is something that would have been unthinkable not long ago.
Since 2013, assets in alternative investments have tripled, with private equity making up the largest share.
Source: MarketWatch
It’s now the single fastest-growing asset class, representing an unprecedented opportunity for those who know how to navigate it.
My Approach: Pizza by the Slice
I’ve been able to build what I like to call a portfolio of “pizza by the slice.” Essentially, my investment amounts in fractional acquisitions have been equal to what I would have spent on buying entire businesses outright.
Here’s the thing: for me, this approach doesn’t exist without first owning a business.
That’s the foundational element, generating cash flow and building wealth. Just as someone with a traditional job might use their income to invest in the stock market, I use the cash flow from my businesses to invest in private market opportunities.
This approach is centered on capitalizing on market inefficiencies to achieve the highest possible returns. I started calling it the wealth stack, and it’s designed to be the opposite of a risk stack.
Instead of piling on leverage and operational complexity, the wealth stack is about layering strategic investments that complement each other and maximize growth.
How Do You Determine High-Performing Private Investments?
The secret to high-performing private investments lies in understanding and targeting businesses that create real value.
There are three pieces to this:
- High-Growth Businesses
- Growth Predictor Framework
- Pre-IPO Deals
Investing in Gazelles
In Buy Then Build, I reference David Birch, who coined the term “gazelles.” These aren’t defined by size – big or small – but by their growth trajectory.
The key factor to focus on isn’t how large a business is; it’s how fast it’s growing. Gazelles, by Birch’s definition, are companies that start with at least $1 million in revenue and grow by 20% annually for four consecutive years. These businesses are powerhouses, responsible for 70% of the economic growth in the U.S.
Now, imagine being lucky enough to invest in a gazelle. Hypothetically speaking, over five years, the returns could be remarkable. To put it in perspective, let’s compare the average market return of 10% to an investment in a gazelle. At the end of those five years, instead of growing your initial $1 million to $1.5 million, you’d be sitting on $2.5 million.
Who wouldn’t want an extra million dollars?
Investing in high-growth companies like gazelles is a strategy that can truly accelerate wealth creation.
Strong Teams Servicing a High Demand
Another way I evaluate high-performing companies is by using a framework I developed called the Growth Predictor Framework.
What I’m really looking for are strong professional teams operating in industries where I don’t currently have a presence. These teams must be tackling opportunities with built-in demand and, most importantly, have a competitive edge that sets them apart.
This model has been key for me in evaluating risks and gauging my confidence in a business’s potential for future performance. It’s about systematically understanding not just where value exists but where growth is most likely to thrive.
Lastly, I look for pre-IPO deals. If you’ve read the trilogy of Rich Dad Poor Dad – yes, it’s actually a trilogy – you’ll know that the third book dives into the concept of finding pre-IPO deals.
That’s where the magic happens because of the lift in value that occurs in that specific market. And that’s exactly the kind of edge we’re looking for today.
The Two Levels to Unlocking Wealth
People make money in two key ways: as operators and as investors.
At its core, Buy Then Build is about a simple, proven process: capitalize, grow, and exit. That’s the essence of what we do.
However, there’s a limit to how much you can take on. Stacking business after business eventually exhausts your bandwidth, making it unsustainable to continue adding full-scale operations. This is where fractional acquisitions come in.
Fractional acquisitions allow you to stack wealth using the same “capitalize, grow, exit” framework, but without the heavy lifting of managing another full-scale deal. It’s a scalable way to continue building wealth while conserving your energy and resources.
If you’re looking to acquire a business in the next 12 months, the Acquisition Lab is your first stop. Reach out to us today and get on the fast track to becoming an acquisition entrepreneur.
