“Let someone else run the marathon and incentivize them.” -Andrew Wilkinson
Tinyis a long term holding company for internet businesses started by Andrew Wilkinsonand Chris Sparling. They take majority, generally whole, stakes in "profitable, simple, and often boring” internet businesses.
I suspect this is the most dependable way to become very wealthy. It isn’t as glamorous or as quick (potentially) as founding the next multi-billion dollar startup or being a kingmaker VC. This is a longer-term grind it out approach.
Starting companies is fun, but anyone who has done it knows it is a lot of work. Buying established businesses with existing cash flow isn’t as sexy so I suspect it is wildly underrated as a way of building wealth.
The reality is that it is easier to buy and improve businesses than to start them. It is easier to go from 3 to 10 than from 0 to 1. Even for the folks that have done it before.
Talent arbitrage makes this model appealing. The future of business is remote and people are going to take a while to appreciate this. You can buy companies and replace expensive people with a global remote workforce that is just as good (or better) and cheaper.
There isn’t much info on how holding companies or micro-PEs like Tiny actually operate. I’ve listened to every podcast Andrew has been on and compiled these notes from them.
Here is what they are doing behind the scenes.
In 2006, Andrew foundedMetaLab, a Victoria, Canada-based design agency shortly after high school. After rapid growth, he used the profits to diversify into a variety of businesses, which today form Tiny, a holding company he owns fully with his business partner Chris Sparling.
Agencies traditionally aren’t very profitable, but MetaLab is able to charge San Francisco agency rates and only pay Victoria, Canada wages.
Tiny started buying businesses in 2013 when MetaLab was doing $7M/year in profit. Tiny is fully self-funded today.
Comfortably not tiny. It sounds like somewhere around $80-95M revenue per year (double-digit millions is what Andrew says) with highly profitable businesses. They have around 350-400 employees across 20ish companies.
From their site:
3-5+ years of operating history
Profits. A minimum $500k/year in annual profit, as high as $15MM.
A high-quality team in place. This is negotiable if the business is simple to operate and the team wants to leave.
We are open to owners sticking around, leaving cold turkey, or transitioning out over time. We'll work with you to transition.
Simple internet businesses that have high margins, don't require tons of people or complex technology, and have a competitive advantage that protects them from competitors. For example: A dominant brand, a large and loyal community, a niche vertical, or something similar.
Andrew describes these businesses as "New Zealand companies.”
What is a New Zealand comapany?
It is in the middle of nowhere, nobody is paying attention to it, but it is quietly growing. It is not at risk of nuclear war.
It is self-sufficient and thriving. It’s food & energy independent. A "safe" business isn't beholden to benevolent gatekeepers like Google or Facebook to reach their customer.
Andrew is always worried about staying power.
An example of one of his New Zealand business is Dribbble:
Top 1000 site on the internet
A huge community of designers
Profitable
Few competitors. Big companies are not trying to kill it or compete.
Not dependent on Facebook or Google for traffic. People type Dribbble into the address bar to visit.
I don’t know if this is by design, but it seems like Andrew has progressed from services to tools/products to platforms/communities to digital marketplaces.
Agencies: MetaLab (design agency), Double Up (podcast growth agency), 8020 (no-code agency)
SaaS tools:Flow(product management), Castro (podcast player), Supercast (podcast subscriptions)
Products: Caramba
Communities: Dribbble
Media: Designer News, RideHome (podcast network)
Job Boards:We Work Remotely
Digital goods marketplaces: Creative Market, Pixel Union
Tiny companies have fewer information responsibilities than typical PE-owned companies. There are no formal board meetings for example.
Once a month companies send Tiny a finance-only update with the P&L, balance sheet, and KPIs. No operational info is included.
Once a quarter companies send Tiny a SWOT (strengths, weaknesses, opportunities, and threats) analysis.
Companies contact Tiny ASAP for emergencies, major news, or decisions.
Some CEOs will go 6 months or more without speaking with Andrew.
Tiny’s primary business is buying majority stakes in businesses, not starting them. For a while Andrew would start a new business in any niche he was interested in. He tries to avoid that now and thinks it’s a lot better to buy something that is already good.
When Andrew does start a new business now, he delegates almost all aspects of it. He recently said he only spent something like 4 hours on each of the new businesses he has launched.
Andrew will pay for all the work to be done and the investment will form his stake in the business. He will find a CEO to run the business and pay the new CEOs a month or two of salaries to get things going. Then he’ll help with intros, but otherwise, he’ll be hands-off. All in he said it takes $10-50k to get off the ground with a great operator.
Tiny is positioned as the good guys of private equity. The Berkshire Hathway of internet businesses.
They have become known for doing simple acquisitions. Andrew didn’t like the traditional acquisition process: long due diligence, and renegotiation of terms. Warren Buffet does deals in seven days and those are larger, more complex businesses. Smaller deals should be even quicker.
A challenge with this model is that it is difficult to acquire tech companies at reasonable prices. Acquiring boring traditional businesses is easier because the valuations are so much lower than tech companies. To successfully use this approach you need discipline around what you’re willing to pay for a business and a reputation for being easy to work with. I suspect Andrew gets deals by being a nice guy and offering a good home for businesses to live on. Contrast this with the typical PE approach of dramatically cutting costs (ie firing everyone) and squeezing as much profit out as possible.
Andrew will occasionally pay 10x for an amazing business, but that is rare.
For the employees, it is business as usual for the most part. The goal is for the employees to not even notice.
The biggest difference is that Tiny becomes the bank. Cash is kept in the company based on historical working capital needs and any extra goes to the head office for new acquisitions.
Often Tiny buys product or designer-led startups that have grown organically. They will raise prices and put standard best-practice marketing and sales processes in place. Each company has its own CEO with a few exceptions like all job boards (5+) are under one CEO.
Andrew estimates the cost of running a business in Canada can be 60%-65% the cost of California. Struggling American companies can reduce costs by moving to Canada. Canadian arbitrage includes lower salaries, not needing to pay medical benefits, SRED, and cheaper currency.
Often Andrew is buying from bootstrapped founders that have been at it for 5-10 years and want to move on.
Finding great people to run these companies is one of the hardest aspects of this model.
Andrew deals with this by paying up and hiring CEOs that have managed similar businesses at larger scales already before instead of trying to find underpriced less-experienced talent.
Months before closing on a deal Andrew works to identify opportunities for the business and a new leader to come in.
He finds these new CEOs through his existing CEOs by asking “we’re about to buy a business who’s the smartest person you know in the space."
Andrew spends time looking for new deals and looking at their existing portfolio and thinking "how they could get fucked”.
Andrew says his strengths are:
Laser focused on problems for a short period of time. Moves fast.
Very good at 0 to 1. Burns bright for 15 days.
Inch deep and a mile wide
Not good at execution or day to day details
“Entrepreneurship is just delegation” -Andrew Wilkinson
Being comfortable with delegation is key to this model. Andrew is the owner, not the CEO. The owner can’t constantly be delegating what can or can’t be done or the CEO grows resentful. Some comfort with decisions being made that you don’t agree with comes with the territory. Large decisions that require more capital than usual are a discussion.
Tiny companies are not at all connected. They each operate independently.
CEOs will take calls and give advice on best practices, but nothing beyond small favors. Real work gets paid for. Tiny pays all companies for the work they do for holding company and all work between companies is paid at the full rate.
Synergies are appealing, but they generally just make the CEOs resentful so they are avoided entirely.
Tiny uses little debt for acquisitions (less than Berkshire Hathaway). Likes to pay off debt within 6 months. Debt comes fromBDB of Canada, or traditional banks.
If you know of anything I should add to this please reach out@ColinKeeleyor Colin@ColinKeeley.com.