Buy Beats Build

Syed Balkhi shares insights about the advantages of buying existing businesses versus building new ones, drawing from his experience building a portfolio worth over $1B through strategic acquisitions in the WordPress ecosystem.

Key Points:

• Building vs Buying Philosophy:

  • Building new products requires more resources and senior team time than anticipated
  • New builds have zero return on investment during development phase
  • Building has higher risk - if it doesn't work out, you lose everything invested
  • Buying existing revenue is safer than betting on future revenue

• Acquisition Strategy:

  • Look for "mismanaged gems" - businesses not reaching full potential
  • Focus on businesses where you can immediately add value through:
    • Existing vendor contracts
    • Cross-promotion opportunities
    • Multiple revenue stream potential
  • Pay cash upfront for better deal terms
  • Close deals quickly (30-40 days) versus PE firms taking 6+ months

• Risk Management:

  • Buy at discount to intrinsic value (e.g. pay $700k for $1M value)
  • Create "heads I win, tails I don't lose much" scenarios
  • Need 40% downside before losing money with this approach
  • No debt or leverage used - preserves autonomy during tough times
  • Compound steadily rather than seeking explosive growth

• Portfolio Management:

  • Focus on single ecosystem (WordPress) for synergies
  • Look for businesses that complement existing products
  • Turn single revenue stream businesses into multiple streams
  • Aim for healthy double-digit annual compounding
  • Accept getting "rich slowly" with lower risk

• Common Mistakes to Avoid:

  • Don't let excitement lead to overpaying
  • Avoid pressure from artificial timelines
  • Don't underestimate existing business problems
  • Stay disciplined and patient when evaluating deals