Hello, and welcome back to The Breakdown.

Last week we talked about the creator economy, specifically Chip and Joanna who I think would be considered top tier, and a pioneer of that and how I think they can potentially become billionaires.

Today, we're going to be breaking down the pinnacle of a different trend that is going on right now, the "hold-co" trend.

The hold-co trend is the opposite of venture capital and startups. When you think of startups, you think of raising millions of dollars, building a product for a couple of years, THEN selling that product, and raising more money as you go and probably being unprofitable for a while.

Hold-co trend says hey, I am going to hold ownership in multiple small businesses that make money right away (these companies are never going to be billion dollar companies, probably not even $100 million companies), rather than take a chance on a huge outcome with equity value and taking a ton of risk. That way, I am going to lower the risk, take distributions rather instead of playing for equity value, and that is how I will make my fortune.

Recently, a company called Tiny went public playing this exact game, and I think it's worth a dive.

Here's a couple of things you might take away from this:

1. The 80/20 rule at work

2. Compounding beats scattering

3. How the future of business may be "people hold-co's"

Breaking down: Tiny

Tiny was started by Andrew Wilkinson and his partner Chris Sparling, and what they do is they invest and buy into internet businesses. Andrew is the one who started it all back when he was 18/19 when he started a company called MetaLab, which is a UI/UX agency for startups.

Everything that has come to fruition last Friday (the day they went public) all stems from that one company. When Andrew first began this business and it started taking off, making some money, he needed something to do with the cash. So, he started to try and start new companies that he thought might work out. Well, to be frank, it flopped. He tried a few different things, and they ended up failing. So, he thought to himself, "why not just buy existing businesses that already are making money and proven, and invest that way?"

And that is exactly what he did, with the profits from Tiny he now owns/has ownership in around 30 companies, mainly being agencies, platform companies, and even job boards. And that holding company is what went public in Canada last Friday. Well, as you may or may not know, when you go public you need to release a huge report and financials, often called a 10-k or 10-Q (Canada has some equivalent forms), and that is where the following information has been found from.

The around 30 companies produce around $110 million per year in top line revenue for Tiny, which is pretty incredible? What's more incredible, about 3 of those companies produce about 80-90% of all that revenue.

MetaLab, the company he started when he was a teenager (he is now in his mid 30's), produces around $62.8 million (so over half from just his main company), and has been growing around 20-25% a year for the past few years, which is actually really darn good, but not even that great when you compare to things like startups who are expected to maybe double, or grow 50% each year. What's even better, is the net income of the business is around 40%. But that's the name of the hold-co game, grow slowly, and that growth will compound into a large number.

I think what I like even more about this, is if you take a 25% per year growth since around '06 when he started MetaLab, you would get a number a lot higher than what it is now, which just shows even the big business have slower years, and everything isn't peachy all the time. But still, 17 years of a company with 40% margins growing each year, that compounds into a large number nonetheless.

Next, you have his other behemoth which is called Dribbble, a platform for designers to list their portfolio's and generate business. This does around $30 million a year in revenue for the hold-co which makes it their other juggernaut (and now already $90 million of the $110 million total, ~82%). And then last is WeCommerce, which is a rollup of Shopify apps which does about $10 million, bringing it to $1000ish million from just 3 of the 30 companies.

And if you run a business, or you even are a part of the business, or just look at your life, this kind of thing often remains true. It is called the Pareto Principle (often known as the 80/20 rule), which says that 80% of your outcome, will come from 20% of the inputs. Sometimes it may be in the range of 70/30, I've seen situations where it is more like 90/10, and even as much as 95/5.

This can even be something like 20% of your customers drive 80% of your revenue. For me during tax season, it was 20% of my sales/customers produce 80% of my headache. And as much as that is a joke, it is 100% true.

Another big takeaway is from another company they own called We Work Remotely which is a job board for remote jobs. This company does around $3 million per year (was up to around $6 million in the height of COVID), and only has like 3 people full time on the team dedicated to the core product (it looks like they do a lot of contract people for small tasks including design, matchmaking, etc). That's it! Talk about a profitable business.

My last big takeaway is the simplicity of this operation, and how attainable it actually could be for small business owners. Frankly, based on the timeline, even if you were 40 years old today, you could start over just like Andrew, and this would be attainable before you reached the average retirement age.

It started slow, with one company, and they got that to work really well. Then, they even took some losses trying to start other companies before deciding buying them was a better way forward. And now, there is an empire worth around $600 million, and Andrew is nicknamed the Warren Buffet of internet businesses.

And I think we are going to see this more and more often from this day on. There is a movement against what has been the hot thing of starting a startup and shooting for the $1 billion dollar exit, and has now moved to small business that generate cash right away, that you can pay yourself and have a nice life from.

It also is more beneficial because it allows you to spread your bets and diversify your risk as an individual. Just like you don't invest all into one stock because if that one goes down, you go down with it, investing in an index or multiple companies lowers the chance that one event or one company going down will take you down with it.

And, with this rise in AI, we are going to begin to see a lot of 1 person businesses with contractors/AI doing the other main tasks making businesses super profitable, and giving many small business owners the ability to do this hold-co type model. We already are actually, with even Chip and Joanna Gaines being a perfect example and on a similar scale to Andrew and Tiny.

How might this accelerate more, and already is? Well, if you didn't already realize we are going to be losing a large portion of our workforce as baby boomer's retire, of which a lot of them had cash flowing small businesses. They may be in things like HVAC, electrical, trucking, and other service businesses which aren't typically the go to thing, but they make MONEY. And they might not have anything to do with the company, no people to take over, no solid operations to continue after they're gone.

And that, my friends, is the fuel that could make this fire go nuts.

And that's all for today, if you want to get more follow me on Twitter @Cam_LaChance, where I interact with people and share more thoughts similar to what I write about here.

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💯 Freaking sick dude🤷‍♂️ Meh, do better next time😑 Bruh, I might unsubscribe after reading that